Sell off by FIIs does not impact markets; retail participation is more important, says SEBI executive director

• Ten years ago markets were completely driven by FPIs but today the situation has changed, says V S Sundaresan, executive director at SEBI.
  
  
• The SEBI director believes that retail investors are confident in Indian markets and enough to hold the markets strong despite FII exits.
  
  
• Lack of investor awareness, regulatory overreach and litigant mindset are weaknesses in our markets, said the SEBI official.
  

A sell off by foreign institutional investors (FIIs) no longer impacts Indian equity markets like it used to a decade ago, said V S Sundaresan, executive director at Securities and Exchange Board of India (SEBI). He says that retail participation has become more important in the home market.

“Ten years back, markets were completely driven by FPIs but today the situation has changed. Nobody is bothered if FPIs are putting or pulling money. It does not affect the market in any way and they are only now for headlines,” said Sundaresan at 14th Capital Market Summit on Wednesday.

FII exits have been making headlines especially since December last year, while impacting markets and inducing volatility. In January, FIIs sold Indian equities worth ₹41,464 crore and in February, so far, they have sold ₹1,041 crore equities.

As a result, Sensex has dropped over 2%, and Indian markets have been underperforming compared to others in China and Hong Kong.

Retail participation balances flows in the home markets

The SEBI director believes that retail investors are confident in Indian markets, and that’s enough to hold the markets strong despite FII exits.

“Participation by retail investors has given fillip to this market that can do with or without FPIs. We should be proud of this. This clearly shows there is a good progressing capital formation. This is definitely proving that the savings potential of India is being channeled into capital markets. Capital markets are having enough support from non-FPIs so that markets are balanced,” added Sundaresan.

He added that Indian markets are stable with considerably lower volatility compared to other markets. “Despite economic slowdown, increasing interest rates, we have a resilient market,” he said.

He added that there is a lack of investor awareness, as new investors are incurring hefty losses in derivatives markets. “Data shows that 9 out of 10 are losing money in options in F&O markets as everybody thinks they can play in options markets. There is a lot of scope for investor education,” said Sundaresan.

Regulatory overreach, rising litigations are market weaknesses

Lack of investor awareness, regulatory overreach and litigant mindset are weaknesses in our markets, said the SEBI official. The cost of compliance has increased substantially with non-compliances leading to a rise in the number of litigations. For which, he says there is a need to increase self governance.

He cited the example of the government’s AGR (adjusted gross revenue) based revenue sharing model with the telecom players wherein the companies are unable to pay the dues, which eventually increases government’s stake.

The government recently converted the interest on AGR dues that Vodafone owes, into equity.

Instead of litigations he said there should be self corrective measures wherein disputes can go for settlements instead of choosing legal battles, which only leads to waste of money, time and resources.