The Securities and Exchange Board of India (Sebi) has initiated several measures to curb volatility in the markets. The regulator had implemented the first round of measures last week when it ordered stock exchange authorities to impose ad hoc margins on leading 25 brokers. The new measures implemented by the Sebi include:
The markets have witnessed a sharp rally since the beginning of this month (see graph) on the back of strong buying interest shown by foreign investors. Coupled with this, the surge in inflows into mutual funds has also contributed to the heightened buying interest in the markets. However, two things need to be looked at to justify the Sebi's move. First, there has been a sharp rise in volatility. To give an example, the BSE Sensex gyrated over 200 points in the last trading session alone. Second is the sharp rise in the net long positions to over Rs 40 bn. The second factor indicates that the involvement of momentum investors in the current bull run has increased dramatically.
The Sebi is taking precautionary measures to insure that the extent of leveraged buying is reduced in the markets. The move is definitely warranted and needs to be implemented forcefully.
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