SEBI Nears Revised Market Categorisation Framework Release

SEBI plans to soon notify a revised framework for market categorisation after pausing last week to address industry suggestions. The regulator aimed to release it earlier, but chose to incorporate fresh inputs for better alignment. Domestic mutual fund inflows and retail participation hit record levels, making this update critical.

SEBI's Manoj Kumar shared these details at the AIBI conference in Mumbai on Thursday. The exercise balances broader capital formation with investor safeguards in a complex market environment.

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Balancing Growth and Protection

Categorisation challenges include defining small-cap, mid-cap, and large-cap stocks for long-term feasibility. Some industry voices call for a micro-cap category. SEBI recently intervened in one such stock, prompting Motilal Oswal AMC to halt inflows into its Nifty Microcap 250 Index fund.

Regulatory moves prioritise market stability over short-term acceptance. Decisions may face initial resistance but gain industry support over time.

Industry Feedback Shapes Timeline

SEBI will soon announce an updated framework to categorise the markets and will pause for a week to consider feedback from industry participants. Originally, SEBI wanted to release this framework last week; however, they added the feedback they received so as to be better aligned. There has been a considerable amount of new investment in the Mutual Fund and Retail segment.

The comments were made by Manoj Kumar of the SEBI at the AIBI Conference held in Mumbai last Thursday. The balancing act is how to create a structure that encourages capital formation while protecting investors in such a complex market. This structure is a work in progress to strike the right balance.

Historical Context and Priorities

One of the difficulties faced in creating a categorisation framework is defining small-caps, mid-caps, and large-caps in a long-term, sustainable manner. Some members of the industry advocate for creating the micro-cap. The SEBI, in fact, has acted upon an incident with respect to a particular micro-cap stock and advised Motilal Oswal AMC to stop taking inflows into its Nifty Microcap 250 Index fund.