Sebi plans AI-based surveillance of inactive firms

The Securities and Exchange Board of India (Sebi) will delist companies with no economic activity from stock exchanges to protect investors, particularly those who invest in penny stocks.

“These companies pose a potential danger to investors, and therefore, it is necessary to remove them from the listed space. We are making efforts towards their delisting,” Sebi chairman Tuhin Kanta Pandey said Saturday in Kolkata.

Several companies with no economic activity remain listed, potentially creating scope for market manipulation.

Such firms could pose a danger and should not continue to crowd the listed space, Pandey said.

Investors with limited knowledge of the stock market tend to buy penny stocks because they are available at throwaway prices, often below Rs 10 or Rs 20. They risk losing money when prices correct.

According to an ET report on November 1, as many as 10 penny stocks saw their prices fall 35-70% over the past three months.

The market regulator is planning to use an artificial intelligence-based system to monitor companies with minimal economic activity and generate alerts faster, Pandey said.

He also said Sebi is likely to issue its proposed consultation paper on compliance requirements for foreign institutional investors (FIIs) within weeks. The regulator will also take a consultative approach to capacity building for independent directors.

The consultation paper on FIIs will seek views on aligning Indian norms with global standards. This comes amid large outflows of foreign capital that have contributed to a persistent decline in stock indices.

Foreign portfolio investors withdrew a net $31.4 billion from Indian equities in the first 10 months of the year, seeking higher returns in safe-haven assets amid rising US treasury yields, the dollar's relative strength against other major currencies and continued geopolitical uncertainty.