India's markets regulator Securities and Exchange Board of India (SEBI) said on Monday that there may be pockets of irrational exuberance in the Indian equity markets, referring to concerns over stretched valuations of small- and mid-cap stocks and large inflows into mutual funds investing in these segments.
SEBI has suggested mutual fund trustees look at whether lump sum investments into the small- and mid-cap funds are appropriate.
It is not appropriate to allow the froth to keep building, SEBI Chairperson Madhabi Puri Buch said on Monday.
Recently, the markets regulator sent a directive to mutual funds to disclose stress test results of small- and mid-cap funds from March 15. This will help assess the time taken by a mutual fund to exit portfolio positions in times of stress.
Since the beginning of 2023, the Nifty small-cap 100 and mid-cap 100 have risen 58% and 54%, respectively, outperforming the 23% rise in the benchmark Nifty 50
Despite concerns over elevated inflows into the segments, small-caps led the charge among equity mutual fund inflows in February, data from an industry body showed on Friday.
SEBI also said on Monday that it received feedback that some entities may be misusing provisions of small and medium enterprises' listings. The markets regulator said it is collecting evidence on concerns of price manipulation in the segment.
