Sebi plans AI-based surveillance of inactive firms

The Securities and Exchange Board of India (Sebi) aims to safeguard investors by delisting companies with no economic activity from stock exchanges. Sebi chairman Tuhin Kanta Pandey stated that these dormant companies pose a risk and must be removed from the listed space. Several companies continue to remain listed despite having no economic activity, potentially contributing to market manipulation. These firms could create instability and should not take up valuable space in the market, according to Pandey.

Investors with limited understanding of the stock market often purchase penny stocks due to their low prices, typically under Rs 10 or Rs 20. However, these stocks can be risky if their prices decline, leading to potential financial loss. Recently, 10 penny stocks saw a 35-70% drop over three months, as reported by an ET article on November 1.

To address this issue, Sebi plans to employ an AI-based surveillance system to monitor companies with minimal economic activity and issue alerts more swiftly. Pandey also mentioned that Sebi is expected to publish a consultation paper on compliance requirements for foreign institutional investors (FIIs) within weeks. This consultation will involve gathering feedback on aligning Indian norms with global standards, particularly amid large outflows of foreign capital causing a persistent decline in stock indices.

Additionally, Sebi plans to engage in a consultative approach to capacity building for independent directors. The foreign portfolio investors withdrew a net $31.4 billion from Indian equities in the first ten months of the year, in search of higher returns in safe-haven assets amidst rising US treasury yields, a stronger dollar, and ongoing geopolitical uncertainty.