India’s financial influencers have once again come into the spotlight, as the country’s market regulator is taking more serious action against unregistered advisors who are sharing investment advice on social media.
Recently, the Securities and Exchange Board of India (SEBI) took action against Mohammad Nasiruddin Ansari and two other associated entities. They have been banned from the market, and they are required to refund 172 million rupees (equivalent to $2.1 million) to their followers. Ansari, who boasts nearly half a million subscribers on his YouTube channel, was offering investment guidance through his web portal, which masqueraded as an educational platform, according to SEBI.
This marks the third notable crackdown on financial influencers in India this year. Despite the global retail trading enthusiasm slowing down post-COVID, the continued surge in Indian stock markets has led many young investors to flock to social media platforms in search of stock advice.
This trend has given rise to a growing number of influencers, like Ansari, who provide guidance on investing.
According to Manendra Singh, a partner at Mumbai-based Economic Laws Practice, “The regulator, Sebi, is closely monitoring the behavior of financial influencers, and if necessary, they might take further actions. The struggle between the influencer community and the regulator is expected to persist.”
Since global stock markets hit their low point in March 2020, India’s NSE Nifty 50 Index has skyrocketed by almost 130% when measured in U.S. dollars. This is roughly twice the increase seen in the MSCI All Country World Index. Moreover, indices tracking smaller and mid-sized Indian companies have experienced even greater gains, leading to a surge in the number of people opening trading accounts.
To address this, the Securities and Exchange Board of India (SEBI) has consistently cautioned investors about the risks associated with following questionable advice found on social media. SEBI has taken action against at least 29 unregistered entities for offering investment recommendations. This includes actions taken against a well-known influencer and options trader, P R Sundar, who resolved the charges by paying a fine of 4.7 million rupees. Additionally, Profit Guru and its founder Satish Shukla have faced restrictions.
In Ansari’s situation, SEBI stated that he enticed clients by guaranteeing monthly returns of up to 600,000 rupees. He also offered real-time trading advice to those who paid him for it. On top of that, his YouTube channel featured videos that promised quick profits through trading, according to the regulator.
In an effort to oversee financial influencers, SEBI sought public input in August on a regulation designed to curb the activities of advisors and analysts who are not registered with them.
The introduction of these stricter rules has also affected registered investment advisors by increasing their compliance costs, noted Amit Kumar Gupta, the founder and portfolio manager at Fintrekk Capital.
He mentioned, “Conducting business with ethics has become quite challenging these days.”
Nevertheless, experts in the industry believe that by establishing well-defined guidelines for the activities of influencers, SEBI can transition them from the unregulated “Wild West” to the realm of mainstream investing.
Singh stated, “I don’t believe the rise of financial influencers will disappear because of these measures.”
