Sebi chief says disconnect between markets, real economy a global phenomenon

The volatility index has come down in the last few months but continues to be higher than five-year averages.He said a defining trend in FY21 has been the direct retail play in the markets, which saw an increase in both the number of demat accounts and also investments by individuals.Tyagi said over one crore demat acocunts have been added in the first ten months of FY21, and with November and December seeing the addition of 15.4 lakh and 18 lakh accounts, respectively.

Capital markets regulator Sebi chairman Ajay Tyagi on Thursday acknowledged the systemic risk concerns raised by the RBI and Financial Stability Board over a disconnect between markets and the real economy, but said that this is a global phenomenon also observed in India.

He said that after the massive fall in markets in March 2020, a strong rebound starting from April was the sharpest V-shaped recovery in the last 30 years.

''Typically, stock markets have been the barometers of the economy and move in the direction in which the economy moves or is expected to move. However, after the onset of pandemic, several institutions including FSB and RBI have raised concerns of an increasing disconnect of financial markets with the real economy and a possible risk it may pose to systemic stability,'' Tyagi said.

''It is not just India which has been witnessing such unprecedented market movements, but similar trends have been there across many global markets i.e. movements one can clearly attribute to effects arising out of the pandemic and the efforts to tackle the pandemic,'' Tyagi said, speaking at an NISM event.

It can be noted that in the last few months, a slew of concerns have been raised about the disconnect wherein the markets have rallied by over 80 per cent from the lows of April post a sharp correction following the declaration of the pandemic, even as the economy went into a contraction zone.

In the Financial Stability Report, RBI Governor Shaktikanta Das flagged risks to overall financial stability and asked lenders to be cautious about the same. According to some experts, a liquidity glut induced by economy-boosting measures taken by countries following the pandemic has resulted in the surge in markets. Tyagi on Wednesday said the pandemic has been rare and catastrophic, and has led to never-before jump in volatilities. The volatility index has come down in the last few months but continues to be higher than five-year averages.

He said a defining trend in FY21 has been the direct retail play in the markets, which saw an increase in both the number of demat accounts and also investments by individuals.

Tyagi said over one crore demat acocunts have been added in the first ten months of FY21, and with November and December seeing the addition of 15.4 lakh and 18 lakh accounts, respectively. Taking note of the monthly SIP (systemic investment plan) inflows into growth/equity schemes of mutual funds to less than Rs 3,000 crore after averaging around Rs 5,600 crore in FY 2019-20, Tyagi said this reducing trend could be indicative of a trend of individual investors using funds previously being dedicated for SIPs to invest directly into the market or in other assets such as debt/real estate or even possibly holding out in cash waiting for market corrections.

The interest shown by the foreign portfolio investors (FPIs) has also been the highest ever in FY21, despite two months of net outflows, Tyagi said, pointing out that India is the highest recipient of FPI inflows in equity market during this financial year compared to other major emerging markets with a net inflows of USD 35 billion so far this year.

Corporates have adopted to a newer way of working, with annual general meetings and board meetings being held online.

Tyagi said there is a possibility of many of these new practices continuing even after the end of the pandemic, but said issues over confidentiality and security on virtual board meets will have to be assessed going ahead.

He also pondered whether shareholders are getting adequate time to pose their questions at the annual general meets.

Tyagi welcomed the focus on environment, social and governance themed investing and added that Sebi is looking at introducing newer regulations for having more granularity in disclosures.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)