Why in the News?

The Indian stock market experienced significant fluctuations following the release of exit poll results earlier this month and again on June 4 when the Lok Sabha election results were announced.

However, the benchmark indices, the Nifty and the Sensex, have since managed to regain their losses.

The main opposition party has accused PM Modi and Union Home Minister of manipulating the stock market through their statements to benefit certain investors.

What’s in Today’s Article?

• Background (Context of the Article)
• Opposition’s Allegations & SEBI’s Norms
• Central Govt.’s Response

Background:

• On June 3, after the exit poll results indicated a strong win for the BJP, the Nifty and the Sensex both surged, gaining 3.2% and 3.4%, respectively, reaching all-time highs.
• Companies seen as close to the government, like the Adani Group, and public sector companies, which were expected to benefit from PM Modi's third term, saw the biggest gains.
• However, the very next day, June 4, both indices dropped by nearly 6% when the actual election results did not meet the exit poll predictions.
• This drop was the worst single-day fall since March 2020, during the initial COVID-19 outbreak in India, and wiped out about ₹30 lakh crore of investor wealth.
• Before the exit poll results, the Prime Minister and the Home Minister had encouraged investors to buy stocks before June 4 to benefit from the anticipated election results.

Opposition’s Allegations:

• The opposition has accused PM Modi and HM Shah of urging retail investors to buy stocks before the election results as a way to manipulate the market for the benefit of certain foreign investors.
• It has highlighted that the value of stocks traded for cash doubled on May 31, the last trading day before the exit poll results were released.
  • On that day, ₹2.3 lakh crore worth of stocks were traded, up from ₹1.1 lakh crore the previous day.
• He pointed out that over half of the buying on May 31 came from foreign investors who had been mostly selling stocks before that day.
• Analysts suggested that the PM’s statements urging investors to buy stocks before June 4 helped these foreign investors, who bought stocks before the exit poll results caused a 3% rise in the market.
• The Opposition claims these foreign investors had insider information about the exit poll results and sold their stocks to retail investors, who then faced significant losses on Tuesday.
• The Opposition is calling for a joint parliamentary committee (JPC) to investigate the matter.

What Are SEBI’s Norms on This Issue?

• The Securities and Exchange Board of India (SEBI) states that spreading false or misleading news to influence the buying or selling of securities is illegal.
• However, general comments on market trends made through mass media like TV and newspapers are allowed.
• These are different from secretly leaking information to specific investors for profit.
• Therefore, unless it can be proven that PM Modi collaborated with certain investors to boost the market before the exit poll results, his public statements encouraging investors to buy before June 4 are probably not illegal.

Central Government’s Response:

• Union Minister Piyush Goyal countered the Opposition’s claims by saying that foreign investors bought stocks at high prices and sold them at low prices, while Indian investors took advantage of the market's fluctuations to sell high and buy low.
• Data from NSE supports this, showing that retail investors were net sellers on May 31 and June 3, when the market rose, and net buyers on June 4, when the market crashed.