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00:00We are also now joined by our partner at FinSec Law Advisor Sandeep Parikh and market veteran
00:05Sunil Subramanian for more insights on this. Thank you both of you gentlemen for joining us
00:10and good evening. Sandeep Parikh, if I could come to you first. Now, SEBI's latest action,
00:17of course, comes as part of consistent effort that we've seen since I think 2023,
00:23you know, to curtail stock and investment advice from financial influencers.
00:27What do you make of it? And is it in line with what other countries and their regulators are
00:32doing to deal with this?
00:36Right. So, you know, I think in terms of what SEBI is trying to do is I think they're trying to
00:44come to grips with a phenomenon which has kind of enveloped literally millions of investors
00:51and, you know, with all these so-called influencers. And, you know, the one side you
00:58have, you know, the freedom of speech and people's ability to say whatever they want,
01:03versus the need to kind of register people who are kind of trying to provide advice for a fee,
01:10you know, it's very often it's undisclosed fee, it's coming from somebody else.
01:14And the investor doesn't really know about this conflict. And of course, lots of mischievous
01:21recommendations, etc. So I think SEBI has realized that it can't go after millions of people or even,
01:28you know, tens of thousands of influencers. So they want to kind of protect their domain by
01:34saying that people within the regulated space would not be able to interact, promote,
01:39do business, do commerce with these influencers. I think they're kind of approaching the problem
01:46from a different perspective, instead of, you know, passing all these orders against
01:51thousands of people. I think this is something which they believe they can, you know, enforce
01:58far more easily. Right. And how do you see this in terms of what other countries are doing? Because
02:06we have seen action coming in from other regulators in other countries as well.
02:11So, you know, I think most countries are grappling with this phenomenon of, you know,
02:17in the US they're called TikTok people. And, you know, so I think it's kind of quite a common
02:28phenomenon worldwide. And I think, again, you know, I think Western regulators are battling
02:34with it even more because, you know, the kind of freedom of speech, you know, they have under
02:40their constitution is far more liberal than ours. And therefore, you know, I think they're finding
02:47it difficult to kind of go after these people unless they're able to prove fraud. And, you know,
02:54the kind of deals, the backroom deals, which these influencers are kind of getting into,
03:01is not something which you can easily catch because, you know, it's happening inside
03:06people's offices, inside rooms. And therefore, you know, I think the problem is much bigger
03:10than I think the regulators have been able to digest. Right. Mr. Subramaniam, your thoughts
03:17on SEBI now stepping in and also just to bring some context to this conversation,
03:22the fact is that consumers seem to have a lot of trust and influences. In fact,
03:26we'll just run those graphics for our viewers. There's a report by ASCI that suggests that 79%
03:32of consumers on the internet actually trust social media influencers. So the amount of
03:38sway they hold is quite evident. Mr. Subramaniam. So I think that this is part of a larger problem.
03:46And I think this is one angle to it. So if you look at it, there's the derivatives trading problem.
03:50There is the actual stock trading, intraday trading problem. And then this is the actual
03:57buying of stocks through fin influencers. So all of these are essentially coming from a fact that
04:04the mass public, in the absence of proper knowledge, has this gambling instinct. Right.
04:10And they have driven by greed. And typically, if you see, I think it started with the
04:16lockdown and people working from home, so they had a lot more time. The explosion of the internet
04:22and Google and YouTube and everything meant access. So and the youth of India, I think India
04:29is probably one of the youngest population in the world. But it's a combination of these three that
04:32people are just and I would actually treat all of these three, the derivatives trading, the day
04:37trading, as well as the fin influencers, as a combination of these three. And I think that
04:43the derivatives trading, the day trading, as well as the financials based action,
04:47as a part of a larger desire to get rich quick in the people. Now, you mentioned that trust.
04:53Now, if he's coming from a place where he says, I want to get rich, and somebody is giving him a
04:57stock idea, which can, you know, double in a few days. So naturally, he's happy with those people,
05:03he's trusting them, because these people put a fancy charts. And one of the big problems with
05:07our industry, and not just our industry, but is the fact that there's so much jargon involved.
05:12And especially with technical analysis, there's so many, you know, the head and shoulders,
05:16double top, double bottoms. So kind of jargon, and people use that. And when people get swayed,
05:21and the problem there is actually financial literacy. People don't have any knowledge
05:27about the intricacies of the stock market and what happens. And on top of it, the problem,
05:32you refer to other countries. Now, the difference between other countries and India is the very low
05:36liquidity of our market. You see, the BSE 500 and the NSE 500 index, it's a 500 stock index,
05:43right? Top 100 companies account for 74% of the market cap. The balance 400 are just 25%. And
05:50what about the balance 5,000 other stocks? So most of these fin influencers don't deal with
05:55these large caps or larger mid caps, they're dealing with the micro caps, penny stocks,
06:00telling them it's a get rich quick scheme, it's not Ponzi scheme. So I think what SEBI is doing
06:05is, I think, very, very good. And they're approaching it in a way where these, see,
06:12actually, if you see, nobody can give advice without registering with SEBI. That's very simple.
06:17So all these fin influencers who are advising people to buy stocks are actually in violation
06:23of SEBI. The problem for SEBI is, it's an internet is an open world, Facebook and Google and YouTube
06:29and Telegram and WhatsApp, they cannot go and go put, you know, use the police force to go and
06:35arrest all these people and put them in jail, where technically they can. So that's why SEBI
06:42is going through this by two things, right? One is they are circulating the media, WhatsApp,
06:49Facebook, they are trying to get them to not allow these kind of things to happen. Now,
06:55none of them are headquartered in India, they're all foreign. The extent to which SEBI's regulation
07:02has an impact, I think there's a lot of influence which will need to be used. And I think the IT
07:07and telecom ministry will also get involved. But that's one way to make sure because when you get
07:12to other kinds of content like porn or political or terrorist content, the country is able to get
07:19these websites to stop and control that. So I think similarly, if these kind of stock advisors
07:25can be stopped at that level, that'd be wonderful. You have to see the progress they make.
07:29The second, of course, is registered entities. And like the chairman's speech you saw just now,
07:34what he said is these people offer their services free to customers very often because they're
07:39getting financed by a regulated entity who is using them as a kind of an investor expansion
07:46program saying, if these guys come in, then maybe we can tap them to come into our businesses,
07:51brokers or mutual funds or whatever. So I think cutting off that chain of income
07:55for these influencers is a very significant step. And I think the way those regulations are actually
08:01notified, you will find that a weak source of income will dry up for this. Now, that being said,
08:08you can see that the large increase in demand accounts. Today we have 15 crore demand accounts,
08:13but there are only five crore mutual fund investors. So clearly, as you can see,
08:17mutual funds, which are a vehicle for long-term wealth creation, have only one-third of the
08:21penetration of somebody who wants to get rich quick through stocks. So I think clearly,
08:27one of the other things is to do financial literacy. And I think Sebi, along with the
08:32National Stock Exchange, they have a Patal Ganga facility. I think literacy of the people,
08:37making them understand that stock market can be a powerful wealth creation tool,
08:42but it's not a get-rich-quick scheme. And I think that gambling mentality, which is driving people,
08:47we have to tackle that at the root. So I would say some more regulations,
08:51some more action on the financial literacy front will be also expected in the coming days.
08:55Absolutely. Mr. Parikh, just touching upon what Mr. Subramaniam said, while Sebi can put in place
09:02a framework largely to deal with this, do you think that some of this burden of educating these
09:10first-time investors should actually also lie with brokerages and investment advisories and so on and
09:15so forth? Because a large number of them also associate themselves with these financial
09:23influences. Yes, I think that's, of course, part of the solution. But I think the real bigger
09:30picture is that we are not talking about idiots, right? They're not fools. They just want to gamble
09:36money. I mean, we've seen the statistics twice over now from Sebi, 89% of them are losing money,
09:42yet they continue. So I don't think they want to learn, really. They want to kind of gamble.
09:46And if you bar them from one thing, they'll probably start doing something else, maybe
09:52go into sports gambling or buy some lottery ticket from one of the states which allows.
09:58So I think it's coming from there. It's not coming from poor literacy, really, or poor
10:04financial education. So it has to be handled at a cultural level as well and not just as
10:11seen as a kind of an uneducated, illiterate people. Right. Mr. Subramaniam, any final
10:18thoughts on what he's saying? Because there are many arguments being made against Sebi's action
10:23in various places saying that this is a free market economy and we should let people learn
10:28on their own. So any final thoughts on that? Yes, there's another overarching thing which
10:34is there in Sebi's mind here. Apart from the people getting misled and doing these things,
10:39that is that these financial influencers are probably also being influenced by insiders.
10:47So this pump and dump you are aware of. So what these influencers are also doing
10:52is to pump a stock up and then dump it when these retail investors buy it. Now,
10:57some retail investors will make money because they would have bought it and sold it. But those
11:01who hold on make a loss. But that's a very severe thing because that's insider trading being
11:06expanded through these thousands of influencers. So I think there's a larger issue which also
11:11Sebi is trying to solve here is this pump and dump strategy of influencers where they're actually
11:16probably acting as the arm of people who want to do insider trading, are pumping the stocks,
11:22dumping them and making profits. And that's a huge criminal thing. And that's also, I think,
11:28something that Sebi will go after and wants to go after. And shutting this tap has another reason
11:34there, which is to stop the spread of this kind of insider trading, so to speak, in a pump and dump
11:40manner. Right. Absolutely. So you feel that this is part of a larger racket as well. Both of you,
11:46thank you very much for joining us on the broadcast.