SEBI Chief Stands Firm: No Comment on Mid- and Small-Cap Stock Slump

Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch has reaffirmed that the regulator sees no necessity to comment on the recent downturn in mid- and small-cap stocks.

Speaking at an event in Mumbai on Friday, she referenced earlier warnings issued in March 2024 regarding potential market bubbles.

At that time, Buch had highlighted overheating risks and urged mutual funds to establish a common policy to safeguard investors.

Additionally, SEBI mandated stress tests for mutual fund trustees to evaluate liquidation timelines during volatile market conditions.

On Friday, she reiterated, “At the point in time when the regulator felt the need to make a statement about it, the statement was made. Today, the regulator feels no need to make an additional statement.”

Market Performance and Investor Concerns

The mid- and small-cap segments, which had outperformed large-caps throughout FY24, have recently faced a sharp sell-off.

The Nifty Small Cap 100 index has fallen 18% in 2025, while the Nifty Midcap 100 has dropped 13%. Both indices have declined nearly 25% from their September peaks, signaling increased investor caution due to economic slowdown fears and trade tensions.

Buch was speaking at an event organized by the Association of Mutual Funds in India (AMFI), where three key initiatives—Chhoti SIP, Tarun Yojana, and MITRA—were launched.

These programs aim to expand financial inclusion, encourage young investors, and assist in tracing unclaimed mutual fund investments.

Mutual Funds and Regulatory Oversight

Addressing concerns about restricting micro-SIPs to specific funds, Buch emphasized the maturity of India’s mutual fund industry.

“Every player in the system knows that when you are bringing fresh investors into the market, you need to ensure the product is suitable and sustainable. That maturity already exists in the MF ecosystem. So, there is no need for a regulator to have any view in the matter,” she stated.

Buch also addressed the proliferation of thematic mutual fund schemes, attributing their rise to the absence of limits and regulatory arbitrage between regular schemes and new fund offers (NFOs).

SEBI’s recent rule requiring asset managers to deploy funds within 30 days of an NFO launch aims to curb excessive fund launches.

Accountability for Distributor Malpractices

On concerns regarding distributor malpractices, Buch stressed accountability.

“If there is any wrongdoing by a mutual fund distributor, we will hold the AMC accountable and responsible,” she asserted.

Regarding promotional incentives like Swiggy Money linked to SIP completions, she reiterated that any assurance of returns is strictly prohibited. “Nobody can say this is how much you will get at the end. If you ask us whether that is allowed, it is not.”

AMFI’s New Initiatives

Under AMFI’s initiatives, Tarun Yojana seeks to enhance financial literacy among school students by training teachers as financial ambassadors.

The program includes a financial knowledge assessment, with top-performing students receiving an SIP investment of ₹100 per month for 24 months.

This initiative will first be tested in nine districts, covering 5,000 students, before a nationwide rollout.

Meanwhile, the MITRA initiative will assist investors and their heirs in recovering forgotten or unclaimed mutual fund investments.

SEBI’s Earlier Warnings on Market Valuations

On February 21, SEBI Chairperson Buch reaffirmed that the regulator sees no need to comment on small- and mid-cap stock valuations despite a 20% decline from their peaks.

This comes almost a year after she flagged the “irrational exuberance” in these market segments.

During an AMFI event in Mumbai, Buch explained that SEBI had addressed small- and mid-cap valuations in 2024 when it was necessary.

In February 2024, SEBI had advised asset management companies (AMCs) to establish policies protecting investors in small- and mid-cap segments as market froth built up.

In March 2024, Buch had remarked, “There are some companies and segments which are being re-rated today, which is a good thing. But there are others also where the valuation parameters seem to be off the charts and not supported by fundamentals, which regulators call as irrational exuberance.”

The significant rise in small-cap and mid-cap valuations in 2024 was fueled by a market rally that nearly pushed Sensex to the 86,000 mark in September.

Both BSE Small-cap and mid-cap indices surged nearly 30% that year. However, markets saw a substantial decline in the months that followed.

Market Outlook

Anirudh Garg, Partner and Fund Manager at Invasset PMS, stated in an interview with Moneycontrol that the current downturn presents a “compelling investment opportunity” for mid-cap and small-cap stocks.

“Valuations have become attractive, and we are strongly bullish for the next two years,” he said.