The Silent Casualty of Market Chaos; How Geopolitical Turbulence Is Eroding Health, Not Just Wealth

Investors in India, and elsewhere, are alarmed at the many global shockwaves that hit them in recent times. Arbitrary US tariffs, US-Israel-Iran war and the consequent disruptions to global trade, shipping, destruction of energy sources, infrastructure, and the demolition of even a semblance of global order. However, the financial media is largely focused on wealth erosion: portfolio losses, FPI outflows, and currency depreciation.  They are almost blind to the parallel casualty: erosion of physical and mental health among investors and savers. Despite it being of global magnitude these days, this harsh reality is almost entirely getting ignored. It is high time finance factor in such real costs to the people, and fine-tune its advice, rather than defaulting to the tired exhortation: stay invested, the sun will shine again.

How Market Volatility Affects Mental and Physical Health

Classical asset pricing theory holds that in frictionless financial markets, households should always allocate a fraction of their wealth to equities, since expected returns substantially exceed the risk-free rate. What the finance theories do not price in is the human body and its functioning.

Stock prices not only reflect investor psychology — they also determine it. Enough has been said about how investor behaviour influences market prices. Far less attention has been paid to the reverse: how market fluctuations shape investor psychology and physical health. There is empirical evidence that price movements directly influence instantaneous well-being — not gradually, not metaphorically, but measurably, on the same day.

Research published in reputed journals, in the last two decades, spanning both  finance and health demonstrates that market volatility directly raises cardiovascular mortality, suicide rates, and psychiatric hospital admissions.  A study titled “Worrying About the Stock Market: Evidence from Hospital Admissions” published in the Journal of Finance (2013) examined patient records for hospitals in California over nearly three decades and found a direct link between market declines and hospital admissions — particularly for anxiety, panic attacks, and major depression. When markets fell nearly 25 percent, hospital admissions spiked by over 5 percent immediately. The researchers’ conclusion was stark: stock market declines today result in psychological distress today. A separate study from Fudan University (2024) demonstrated that a 1 percent decrease in daily stock returns is associated with a 1.77 percent increase in suicide mortality, concluding that stock market volatility is a significant public health issue.

Why Indian Retail Investors Are More Vulnerable

India’s unique demographic structure— a rapidly expanding retail investor base, a large proportion of first-generation investors with low income levels, many without any safety nets or behavioural guardrails, necessitates urgent attention to these issues.  These are not seasoned institutional investors who could manage geopolitical volatility and many other risks well. These are households for whom a 10-15 percent portfolio drawdown is a real existential pain, not an abstraction. It is a visceral psychological emergency. Though no study on the health cost burden is available in the Indian context, it would be reasonable to assume substantial financial costs of medical care and income loss. The true burden, including stress-induced illness that never reaches a hospital, is undoubtedly far larger.

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The Hidden Paradox of Modern Investing

The financial and investment planning industry, backed by decades of research, advocates that increasing life expectancy requires individuals to take equity exposure. A longer retirement demands higher real returns. Avoiding risk, we tell investors, is itself the biggest risk.

But that same research now confronts us with an uncomfortable finding – that sustained exposure to market volatility, particularly in environments of geo-economic uncertainty and sharp drawdowns, measurably increases cardiovascular mortality, psychiatric hospitalisation, and suicide rates. A stressed investor makes poor decisions. Poor decisions create more stress. The cycle is its own kind of compounding. We are, in effect, prescribing a medicine that treats one condition while aggravating another.

Financial wisdom tells us to take risk — because a long life needs a bigger portfolio. But that same risk may shorten the life it was meant to fund. You might build the wealth. You may not live to spend it.

Wealth Can Recover, But Health May Not

The financial services industry has sophisticated tools for wealth protection: stop-losses, diversification, hedging, rebalancing. We have no equivalent vocabulary for health protection during financial stress. No brokerage firm sends a wellness alert alongside a margin call. No star cricketer reminds investors that their mental health matters as much as their SIPs. No market intermediary addresses the physiological dimension of investor protection.

The investment industry — its advisors, analysts, and media — has collectively treated investor wellbeing as a finance problem— measured in risk and returns, managed through asset allocation, and solved by staying invested. The health dimension has barely entered the room.

The evidence now demands a broader definition of investor wellbeing.Investor education seminars, financial planning frameworks, and advisor training curriculum need to formally incorporate a component on overall health — physical, mental, and emotional. A longer, healthier life is not just a personal aspiration; it is a financial variable. How long you live, how well you live, and what your medical costs look like in your later years will shape your retirement corpus requirements just as directly as your asset allocation decisions. Investors who maintain social support networks, limit their portfolio-checking, operate within pre-committed financial plans rather than reacting to daily movements, and hold genuinely diversified portfolios may show significantly lower stress biomarkers during market downturns.

The ongoing geopolitical situation will eventually resolve, as all crises do. Markets will recover. Portfolios will be rebuilt. But the hypertension quietly developed over months of market anxiety, the sleep disorder that began the night arbitrary tariffs were announced – these do not disappear with market recovery. They will remain and worsen as the invisible ledger of our current times. In the relentless focus on what the market is doing to our wealth, let us not lose sight of what it is doing to our health, our lives.

Author: Prof. Rachana Baid, Dean – NISM | Dr. CKG Nair, Former Director – NISM

What is Bear Market? Lessons from Bear Markets

Bear markets leave marks on charts and on investor behaviour. Over the last three decades the NIFTY 50 has endured multiple deep drawdowns – from the Asian Crisis to the COVID-19 crash – and each episode taught us different lessons. Investors must use these lessons to build more resilient portfolios.

Market cycles are measured from peak to trough, so a stock index officially reaches bear territory when the closing price drops at least 20% from its most recent high (whereas a correction is a drop of 10% – 19.9%). A new bull market begins when the closing price gains 20% from its low. A snapshot of the bear markets in the last 30 years and the movement of the Nifty 50 is given below.

Event	Peak Date	Peak Level	Trough Date	Trough Level	% Decline	Days to Trough	Days to recover to Previous Peak
Asian Crisis	Feb-96	1,260	Oct-98	760	39.68%	996	260
Dot-com Bust	Feb-00	1,818	Sep-01	846	53.47%	588	773
2004 Election Shock	Jan-04	2,014	May-04	1,292	35.85%	124	189
2006 Liquidity Crunch	May-06	3,773	Jun-06	2,595	31.22%	34	138
Global Financial Crisis	Jan-08	6,287	Oct-08	2,524	59.85%	293	739
Eurozone Debt Crisis	Nov-10	6,312	Dec-11	4,544	28.01%	410	731
Commodity Crisis	Mar-15	8,996	Feb-16	6,825	24.13%	344	400
COVID-19 Crash	Jan-20	12,430	Mar-20	7,511	39.57%	63	246
Average					38.97%	357	435

The data shows us that the average decline across episodes is roughly 39%, with extremes near 60%. What we learn from this is that we should build portfolios’ assuming severe drawdowns are possible. Portfolios designed only for small corrections will be forced into bad decisions when markets fall sharply.

The data shows us that the time to trough ranges from 34 days to 996 days. COVID-19 compressed fear into 63 days. What that teaches us is that maintaining liquidity can help us avoid forced selling. While fast crashes punish leverage and illiquidity, slow declines test patience and conviction.

The data shows us that the days to recover to previous peaks vary widely – from 138 days to 773 days. The average recovery in the dataset is about 435 days. The key lesson to investor is that having a long-term horizon is important. Investors who sell in panic will lock in their losses and those who stay invested or add during troughs capture the recovery.

The data shows us that bear markets are triggered by different causes – regional crises, tech bubbles, liquidity squeezes, global financial contagion, commodity shocks, and pandemics. The deepest drawdowns often followed leverage, credit stress, or concentrated exposures. It is important to understand that sector concentration will magnify losses. Diversification across asset classes, with exposure to debt, gold, and alternative assets, will cushion idiosyncratic shocks.

The data shows us that timing the exact bottom is nearly impossible. Systematic Investment plans and rupee-cost averaging are the best strategies in any markets.

The data shows us that despite repeated bear markets, the NIFTY’s long-term trend has been upward. The recovery eventually restores and exceeds prior peaks. Over multi-decade horizons, staying invested and compounding returns outweighs short-term pain. Bear markets are part of the price of long-term equity returns.

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The bear markets in the last 30 years have taught us that trying to predict markets is futile. Drawdowns are inevitable, their causes are varied, and their depths and durations unpredictable. Only disciplined planning, liquidity, diversification, and systematic investing, can turn volatility from a threat into an opportunity. Investors who learn these lessons will be better positioned to survive the next bear market and benefit from the recovery that follows.

Author: Shri Shashi Krishnan, Director – NISM

Why Financial Literacy Should Be a Core Life Skill in Higher Education

Through financial literacy and investor education outreach initiatives, I have often interacted with students preparing to enter professional life. One observation consistently stands out: while academic education prepares students for careers, financial literacy prepares them for life.

Why Financial Literacy is Important?

Sharing a few thoughts on why financial literacy deserves greater attention within higher education. During investor education and financial literacy outreach programs, I frequently interact with students who are preparing to enter professional life. Many of them are ambitious, career-focused, and academically capable. Yet when discussions turn to budgeting, insurance, emergency funds, or salary planning, a common question emerges: Are we truly preparing students for the financial realities of adulthood?

The transition from campus to corporate life is one of the most significant phases in a young person’s journey. Receiving the first salary brings excitement, independence, and new responsibilities. However, it also raises practical questions. How much should one save? How should expenses be planned? Is insurance necessary? What is the difference between spending, saving, and investing?

One interesting observation from student interactions is that financial literacy itself remains a misunderstood concept. For some, it means investing in the stock market, while for others it is limited to saving money in a bank account. At the same time, many students possess strong academic knowledge but limited understanding of personal finance. This observation highlights an important opportunity to strengthen student development initiatives in higher education.

What is Financial Literacy?

Financial literacy is not a specialized skill meant only for finance professionals. It is a practical life skill that helps individuals make informed decisions about earning, spending, saving, borrowing, protecting, and investing money. It begins with simple but essential concepts such as budgeting, goal setting, emergency preparedness, understanding salary structures, digital payment safety, and responsible financial decision-making. These are life skills that every student requires, irrespective of academic discipline or career path.

The modern economy is increasingly digital. Students today are active users of UPI, online banking, digital wallets, and e-commerce platforms. While technology has made financial transactions more convenient, it has also increased exposure to cyber frauds, impulsive spending, and financial misinformation. Financial awareness has therefore become essential not only for wealth creation but also for financial protection.

Financial Literacy and Education

The National Education Policy (NEP) 2020 emphasizes holistic development, life skills, critical thinking, and employability. Financial literacy naturally aligns with these objectives. A financially aware student is often better equipped to make informed decisions, manage professional transitions, evaluate opportunities, and plan for long-term goals.

Higher Education Institutions can play an important role in bridging this gap. Short workshops, value-added courses, expert interactions, and practical learning sessions can help students develop financial confidence before entering the workforce. Topics such as understanding salary structures, budgeting, insurance, financial planning, digital safety, and career readiness can create meaningful impact without adding significant academic burden.

As India continues its journey towards becoming a knowledge-driven economy, preparing students for the future requires more than academic excellence. Future-ready graduates must be capable of making informed financial decisions, managing resources responsibly, and navigating an increasingly complex financial environment.

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Conclusion

A degree may help a student secure employment, but financial literacy helps them navigate life beyond the workplace. As higher education evolves to meet the demands of a changing world, financial literacy deserves recognition not merely as financial knowledge, but as a fundamental life skill for every student.

Disclaimer: This article represents personal observations and perspectives on financial literacy and is shared for educational purposes only.

Author: Tushar Kadlag (Assistant Manager, PMD – Investor Education, NISM)

The Reality Beneath the Glass Ceiling: Why Leadership Equality Still Matters

A recent report showing the rising number of women on corporate boards busts a myth or two. But a closer look reveals a narrowed pool one rung below. The picture across public institutions, including the five Assemblies elected recently, is dismal

It is high time that women get the full half of life’s choices and opportunities; not as charity and reservation; but as a natural flowering of a gender-equal society

Women on Corporate Boards: A Story of Progress

Finally, there is some positive news on women on corporate boards beyond the stale stories or ‘ought-to-be’ thinking. A recent report, titled ‘Women and Men in India 2025: Selected Indicators and Data’ published by the Union ministry of statistics and programme implementation (MoSPI), is an eye-opener on many dimensions of India’s gender divide. One heartening information is that women are finally catching up with men on company boards, though their progress on many other fronts continue to be slow. 

Out of over 31.6 lakh directorships on the books, 28.7 per cent are now held by women. Almost a million women on boards is a proclamation of arrival, since for decades the gurus perpetuated a false narrative that there were not enough qualified women to adorn boards, particularly for listed companies with higher-order compliance requirements.

The Glass Ceiling Still Exists Beyond the Boardroom

The MoSPI data covers all companies on the corporate affairs ministry register—listed and unlisted, big and small. The data also confirms that progress thins out at the senior management level below the board. While the share of women on boards stands over a quarter, it is still only about 17 percent in senior management, although a decent 29 percent share is maintained at other management levels. This appears to be a deliberate HR strategy of keeping women from breaking the glass ceiling and getting to the board.

Zoom in to the listed universe—the most visible and regulated, the one the gurus had loudest views about—and a sharper picture emerges. Prime Database’s March 2026 report on the 2,285 NSE main-board listed companies puts hard numbers to it. As of February 2026, 98 percent of listed firms had at least a woman director, up from 97 percent a year earlier; 47 percent now have two or more, up from 35 percent in 2021; but only 88 percent have at least one independent woman director. Women hold 21 percent of all board seats (3,738 directorships held by 2,898 women), against 18 percent in 2021 and a mere 5 percent in 2014 when the regulation kicked in—a more-than-four-fold rise in just over a decade. Women now account for 28 percent of independent directorships, up from 17 percent in 2018.

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Women in Leadership Roles Remain Underrepresented

Move one rung down from the board to actual executive authority and the picture changes. Women are only 14 percent of key managerial personnel, 10 percent of executive directors and just 5 percent of managing directors and CEOs—of the 130 women in those posts among 119 firms, 69 percent are from the promoter families. Only 6 percent of these companies have a woman board chair, and roughly half of those, too, are promoters. Among non-promoter executive directorships, women hold just 7 percent. Most of these new women directors are promoters of start-ups, with some catapulted to boards by promoter families. Still, that will give them the experience to be independent directors in other companies, including the big listed ones.

The MoSPI report tells a sobering story across institutions. In the higher judiciary, of the 1,122 sanctioned judicial positions, only 118 are held by women. The police are no better: women constitute only 10 percent of total officers nationally. The defence forces are starker—women account for just 8.31 percent of total personnel across the army, navy, air force, coast guard and the Defence Research and Development Organisation put together. As of 2025 women constitute just 13.65 percent of Parliament and hold a smaller 9.86 percent of ministerial portfolios. Even in the recently-elected legislative Assemblies of five states and a Union territory, out of 824 elected legislators, only 78 are women. Puducherry, a highly literate place, scored a dismal zero, though 40 women candidates were in the fray.

Why the Role of Women in Leadership Matters

The lone bright spot is at the grassroots: women now account for 49.75 percent of elected Panchayat representatives. So, except local self-government where statutory reservation is the norm, representation of women falls far short of 33 percent. 

Academics, chartered accountants, company secretaries, lawyers, engineers—practically every profession throws up capable women in large numbers. Yet most of them remain off the radars of director head-hunters and nomination and remuneration committees alike. The Prime Database numbers on listed firms confirm it: of every hundred non-promoter executive director seats, only seven go to women—the rest of the talent pool sits within the network of family connections and old-boy circuits. So much for talent search! And this, despite several studies showing that presence of a few women on board make a substantial difference to governance of the company.

Despite the unending condescending talk by all political parties and an attempted constitutional amendment, one-third reservation for women still remains a distant dream. Even when the goal is realised, it will seem like a charity to half the nation’s people. It is an anachronism that they need affirmative action, that too after having become heads of governments. 

 

 

Conclusion: From Representation to Real Leadership

It is high time that women get the full half of life’s choices and opportunities; not as charity and reservation; but as a natural flowering of a gender-equal society, in tune with the times. Rising sons must not be at the cost of fading daughters. The corporate world becoming the guiding North Star sends a powerful signal. Though we are far from the ‘Cinderella’ becoming the ‘Wonder Woman’, gender-equal NIFTY 500 and 100 companies shall not be far away.

Authors:

C K G Nair – Former member, director, National Institute of Securities Markets

Rachana Baid – Dean, National Institute of Securities Markets

Note:

This article was originally published at
https://www.newindianexpress.com/opinion/2026/May/21/reality-beneath-the-glass-ceiling

Through the Lens of Circuit Breakers: Why does the Stock Market Hit Pause?

Imagine this. Monday morning, June 23, 2025. This weekend the United States bombed three nuclear sites in Iran with bunker-busting bombs. President Trump said the sites had been “totally obliterated.” Iran promised revenge and authorized the closing of the Strait of Hormuz, one of the world’s most important oil chokepoints. You open your trading app, and the market is already bleeding.

BSE Sensex fell intraday by 931 points. The Nifty 50 was down 287 points. Oil prices rocketed. The rupee faltered. And on trading desks and WhatsApp groups alike, one question was being passed around: how far can this go down before the market just stops?

When does the market stop, and who decides? This question hit right at one of the most important, yet least understood, mechanisms in financial markets: The circuit breaker. It’s a tool that generally operates in the background, unnoticed, until the tensions in geopolitics start to rise and then the panic begins to seep through the trading floors.

For the seasoned trader or the new investor, circuit breakers are the invisible guardrails that separate a bad day from a market catastrophe. The answers range from human psychology to market design and the architecture of financial systems.

What exactly is a Circuit Breaker?

If the market index like Nifty 50 or Sensex falls by a certain percentage in a trading day (or sometimes even rises), then the trading is automatically stopped for a specified time. The purpose of this pause is to:

• Cool down panic: Give investors the space to think rationally rather than react emotionally.

• Share information: Make news available to all participants.

• Re-establish order: Allow buyers and sellers to reassess before prices go further.

• Prevent failure: Don’t let a bad day become a catastrophic free fall.

So, in effect, circuit breakers are the market’s automatic emergency brake. Not a crash, not a failure. Just a deliberate, rule-bound pause.

Where Did It All Start?

To understand circuit breakers, we must go back to October 19, 1987, a day known as Black Monday. The Dow Jones Industrial Average fell 22.6% in one day, the biggest single-day crash in stock market history, and it happened with shocking speed. No guard rails, no delay but just free fall. Panic bred panic and the market had no brake.

“The market had lost its ability to self-correct. Prices were no longer reflecting value — they were reflecting fear. — Brady Commission Report, 1988”

The fallout was a time for some serious soul searching. President Reagan created the Brady Commission, which recommended that stock, futures and options markets coordinate trading halts to reduce panic selling. And thus, circuit breakers were born, formally implemented by the NYSE in 1988.

They’ve been honed ever since, with each major crisis teaching us something new about how fear flows through financial markets.

How Does the System Work in India?

India has a well-defined circuit breaker mechanism introduced by SEBI (Securities and Exchange Board of India) in 2001. It functions on two levels:

Index-based Market-wide Circuit Breakers

It bring an overall trading halt in all equity and equity derivatives markets nationwide and is triggered if BSE Sensex or NSE Nifty moves by a certain percentage:

10% Breach (Before 1 PM): Trading halted for 45 minutes followed by a 15-minute pre-open call auction.

Pause of 45 min for 10 % breach when turned on before 1 PM.

15% Breach (Before 1 PM): Trading halted for 1 hr 45 min, followed by a 15-minute pre-open auction.

20% Breach: Trading suspended for remainder of day.

Individual Scrip-Level Price Bands

Individual stocks (excluding F&O) also have price bands which are usually up or down by 2%, 5%, 10% or 20% beyond which a stock cannot trade in a single day. Additionally, price bands are also applicable on individual scripts (on which no derivative products are available) which are a part of Index Derivatives. So if a stock hits its upper or lower limit circuit, buy orders can be placed at the exact price level and they pool up in the order book until a seller appears.

That’s why you may see a stock marked as “Lower Circuit” or “Upper Circuit” on your trading app, and no trades taking place. The system has set a price ceiling for the day.

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Does it work? Really?

For decades, researchers have debated a question: Do circuit breaker in share market actually reduce harm, or do they simply postpone it?

The honest answer is that it simply depends on the circumstances.

Why Circuit Breakers?

• Breaks the panic-driven herding behaviour

• Allows time for correct information to reach all parties involved

• Short-term extreme price dislocation mitigation

• Defends retail investors who are slower to react than algorithms

However, the following points must also be kept in mind:

• May not remove volatility, only postpone it.

• Creates liquidity risk: investors can’t get out when they need to.

• Sometimes can cause “magnet effect,” i.e., prices rush to the limit.

• Could create uncertainty during the halt itself.

One very interesting concept from research into microstructure is the “magnet effect.” It is the counterintuitive idea that a circuit breaker limit can actually pull prices toward it. But when traders see the market nearing the 10% limit, some panic and sell before the market closes, accelerating the very crash the mechanism was supposed to stop.

Takeaways

At the core, circuit breakers are an admission of something that economics took a long time to acknowledge that the markets aren’t always rational. Investors panic and algorithms can magnify those panics. And without guardrails, a temporary shock can turn into a self-fulfilling disaster. Markets are not machines, but they are made of human investors, and sometimes these investors need a little push to slow down.

As a retail investor, understanding circuit breakers is about understanding why your trades may not go through during extreme market conditions, and why that may be protecting you more than you think. To a market design enthusiast or researcher, they represent one of the most elegant and controversial interventions in financial market microstructure.

Next time the market pauses …you will see that it is not chaos. It’s the design. The market isn’t broken, it’s doing exactly what it was designed to do. Buying time, spreading the word, preventing a bad moment from turning into a catastrophe.

And that is really what market microstructure is all about.

Author: Nitika Sharma (Assistant Manager, Centre for Capacity Building, NISM)

The Successful Default: When a Municipal Bond Serviced Investors but Failed Citizens

Background: Understanding the Municipal Bond Default Case

One of the early success stories of municipal bond issuance in India was that of Pune Municipal Corporation (PMC) when it raised ₹200 crore in June 2017 for a 24×7 water supply project. The bond issue, which was oversubscribed six times, was hailed as a milestone in reviving the municipal bond market in the country. PMC also earned a five-year 2% interest subvention incentive from the Union Government linked to the bond issue.

Fast forward to the present – the bonds fall due for redemption in 2027. Throughout the 10-year issue period, PMC has complied with the requirements under the Securities and Exchange Board of India’s (SEBI) Issue and Listing of Municipal Debt Securities Regulations-2015 (ILMDS Regulations) and is all set to repay the bonds next fiscal. As things stand currently, there are no signs to indicate that the PMC will default on its bond redemption commitments.

Why Municipal Bonds Are Falling: Early Warning Signs in Public Finance

“Perfect!” one would say! “PMC is a role model for municipalities aiming to tap the municipal bond market to finance their development plans.” Except that there is a twist to the story. PMC’s bond journey is making the headlines for all the wrong reasons. Money raised has remained unutilised for nine years, since the water supply project for which the bonds were issued never took off. Going by media reports, land acquisition challenges and contracting issues are stated to be the underlying reasons for the non-starter. PMC now finds itself with the unenviable reputation of being the darling of investors and the bad boy of Pune citizens simultaneously.

Is Municipal Bond Safe for Investors? How Investor Interests Were Protected

The PMC case validates SEBI’s position as a guardian of investor interest. Adherence to the ILMDS Regulations has ensured that bond proceeds have remained ringfenced from general funds of PMC throughout the nine years and are available to repay bondholders. PMC has been regular in servicing half-yearly interest payments. It continues to be credit-rated AA+ (Stable). Parking of bond proceeds in fixed deposits pending utilisation – a requirement under the ILDMS Regulations – has ensured that PMC earned interest on idle funds which contributed to bond interest-servicing. Furthermore, if the 2% interest subvention incentive from the Union Government is also factored, the fiscal impact on the finances of PMC – with an annual budget size of approximately ₹15,000 crore – would be marginal.

When Citizens Pay the Price: How Public Interest Was Compromised

“Financial masterstroke” – you would say? Agreed. But what about public interest, which seems to have taken a beating on multiple counts. Citizens are yet to see the water supply infrastructure that the bond was supposed to fund. The Union Government’s interest subsidy incentive will now enrich bondholders without producing anything tangible for Pune city. In addition to interest paid on the bonds, related expenses in the form of bond issue expenses, project initiation costs, legal and professional fees, and bond servicing have drained public money. A rough calculation puts the aggregate cost – to PMC and the Union Government combined – at above ₹50 crore over the issue period. Of this, net interest

expense itself exceeds ₹40 crore on account of the bullet redemption at the end of ten years.

Would the exception become the norm for Municipal Bonds?

Clearly, the ILMDS Regulations have taken care of investor interest; but the same cannot be said of the larger public interest. In the backdrop of PMC’s case, one can already hear noises about: (i) how bonds are not the ideal financing instruments for the municipal sector, (ii) how abysmally low absorptive and spending capacities at municipalities would mean that PMC’s case is only the beginning of a series of such events as the government and market players try to accelerate municipal bond issuances, and (iii) how PMC is the exception and it should not come as a surprise if other municipalities with weaker fiscal management discover – when the time to repay bondholders comes – that they have used up the bond proceeds for other pressing needs.

What Can Be Done to Make Municipal Bonds Safer for All Stakeholders?

Land acquisition and contracting issues are long known to be the bane of public sector infrastructure projects in India. It is common to find instances of delayed or stalled projects in government at all levels. Whether funded out of own funds, grants, or borrowed money, the financial repercussions of stalled projects can be substantial. However, that does not justify a shift away from debt financing to a conservative approach of only using budgetary sources or grants to finance urban growth. On the contrary, the focus should be on mitigating risks of project failure through better planning, best-in-class procurement and contract management practices, better monitoring, and effective dispute resolution mechanisms, while continuing to exploit market sources of financing. In parallel, the focus should also be on mechanisms to reduce the financial impact of project failures should they occur. SEBI has recently (May 2026) issued a consultative paper proposing significant changes to the ILDMS Regulations to boost municipal bond issuances. While the proposed changes address the demand side, this article discusses five complementary design improvements to mitigate risks arising from poor absorptive capacity of money raised on municipal bonds.

1– Project readiness criteria

The ILMDS Regulations currently mandate approvals to be in place for projects to be eligible for bond issuance. Additionally, mandating minimum readiness criteria can help

Net interest cost computed by the author assuming a differential of 2 percent between interest payable on bonds over interest earned on fixed deposits. Interest subvention incentive has not been considered since that is met from public money.

reduce uncertainties associated with project commencement as well as timely completion and improve the chances of utilisation of capital raised. Specific readiness criteria can be prescribed for different types of municipal projects. Examples of readiness criteria include land availability of 80% and above, environmental clearances, power and water availability, construction readiness certificates, and proof of commitment of the issuer’s contribution (counterpart funding).

For setting readiness criteria for municipal bond-funded projects, one can look at the National Highways Authority of India (NHAI)’s Infrastructure Investment Trust (InvIT) model of monetising only assets that are operational and generating toll revenue.

2– Project substitution mechanism

In addition to project(s) directly covered in a bond issue, allowing issuers to include – in the offer document – a supplementary list of pre-screened projects matching the risk-return profile of the main project(s) could be useful. In the eventuality that one or more of the main projects does not take off for various reasons, the issuer may be allowed to use the bond proceeds for projects on the ‘supplementary list,’ subject to approvals. Currently a “change in the use of proceeds” requires a special resolution by 75% of the investors, which issuers find difficult to organise. The proposed project substitution mechanism, coupled with necessary guardrails, can help in faster redeployment of unutilised bond funds by the issuer.

3– Tranche-based “just-in-time” funding

The ILMDS Regulations currently allow multiple tranches of fund raises using a Shelf Offer Document up to one year from the opening of the first tranche. Expanding the window to two years can help issuers plan drawdowns closer to the requirement of funds commensurate to project progress, thus avoiding parking of bond proceeds in bank deposits for long periods. Further, the Shelf Offer route can be made mandatory for projects with lower levels of readiness along with a ceiling on the first tranche amount. Such design elements can help prevent over-ambitious drawdowns and avoidable interest payments, thereby reducing the overall cost of funds raised. This feature assumes even more important in the current scenario where the Union Government is trying to encourage large issuances more than ₹1,000 crore.

Entities like Power Finance Corporation use the “Shelf Prospectus and Tranche Prospectus” facility effectively to align fund raises to availability and readiness of investible projects.

4– Outcome-linked incentives

The current scheme of incentives for municipal bonds under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme (₹13 crore for every ₹100 crore raised) and the new incentive scheme announced in the 2026 Union budget (₹100 crore for individual issuances above ₹1,000 crore) are offered as bullet incentives on successful listing of bonds. Linking incentives to milestones such as project technical readiness, commencement, completion, and satisfactory bond servicing can ensure that the issuer has “skin in the game” throughout the bond lifecycle.

Staggering of incentives is an inherent feature of the Production-linked Incentive (PLI) Scheme of the Union Government.

The following idea is inspired from SEBI’s frameworks for Green Debt Securities and Environment, Social, and Governance Debt Securities (GDS and ESGDS Frameworks). These Frameworks cover green bonds, social bonds, sustainability bonds, and sustainability-linked bonds and are more recent compared to ILMDS Regulations.

5– Early redemption for purpose washing

The ILMDS Regulations currently require an issuer to submit a half-yearly report on the status of implementation of projects financed from bond proceeds, along with reasons for delays if any. However, no consequences are prescribed for chronic delays. SEBI’s GDS and ESGDS Frameworks provide for early-redemption triggers if the issuer is found “purpose-washing,” i.e., using the proceeds for non-ESG objectives. A provision can be introduced in the ILMDS Regulations on similar lines, under which, non-utilisation of bond proceeds beyond a specified period triggers early redemption. Early redemption can be a powerful deterrent for issuers sitting on idle borrowed funds for lengthy periods or those engaging in “purpose-washing” tactics.

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For example, the Production Linked Incentive Scheme ‘National Programme on High Efficiency Solar PV

Are Municipal Bonds a Good Investment? Key Takeaways for Investors and Policymakers

India’s urban sector is expected to witness massive investments in the coming years. Bonds hold immense potential in channeling market-based finance towards municipal investments. Although PMC’s is an isolated case, more such incidents can erode investor faith in municipal bonds and prove counter-productive to the Government’s and SEBI’s efforts to improve their uptake. PMC’s case provides valuable feedback on the design, governing mechanism, and real-life usage of municipal bonds. Imbibing such lessons into product features early on would ensure that municipal bonds serve not just investor interests but also produce tangible outcomes for urban dwellers.

Author: Ashok Rao, Executive Director – Management and Governance Consulting

References :

PMC to return unused ₹200 crore municipal bond funds to investors – msn – https://www.msn.com/en-in/money/markets/pmc-to-return-unused-200-cr-municipal-bond-funds-to-investors/ar-AA1Yrbma?apiversion=v2&domshim=1&noservercache=1&noservertelemetry=1&batchservertelemetry=1&renderwebcomponents=1&wcseo=1

When municipal bonds fund nothing – Ms. Astha Agarwalla – Basic is Beautiful – https://basicisbeautiful.substack.com/p/when-municipal-bonds-fund-nothing?r=7fpof&utm_campaign=post&utm_m=

Consultation Paper on review of the ILDMS Regulations – SEBI – May 2026 – https://www.sebi.gov.in/reports-and-statistics/reports/may-2026/consultation-paper-on-review-of-the-sebi-issue-and-listing-of-municipal-debt-securities-regulations-2015-_101404.html

National Highways Infrastructure Trust investor presentation – February 2026 – https://nhit.co.in/pdf/investor-presentations/22%20February%202025%20Investor%20Presentation_NHIT.pdf

Power Finance Corporation – Shelf Prospectus for Public Issue of Bonds – https://www.pfcindia.co.in/ensite/Home/VS/10304

Municipal Bonds need more than incentives to fund India’s cities [Commentary] – Dr. Ravikant Joshi – Mongabay India – https://india.mongabay.com/2026/03/municipal-bonds-need-more-than-incentives-to-fund-indias-cities-commentary/

Modules’ of the Ministry of New and Renewable Energy (MNRE), Government of India – https://cdnbbsr.s3waas.gov.in/s3716e1b8c6cd17b771da77391355749f3/uploads/2023/08/2023080898.pdf

Chapter IX-A of SEBI’s Master Circular for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper – https://www.sebi.gov.in/legal/master-circulars/may-2024/master-circular-for-issue-and-listing-of-non-convertible-securities-securitised-debt-instruments-security-receipts-municipal-debt-securities-and-commercial-paper_83546.html

What is SIF? Benefits, 7 Months Progress & Investment Considerations

Progress review gives us direction and new perspectives

Key Benefits of Investing in SIF

The vehicle of Specialized Investment Funds (SIFs), launched in the space between Mutual Funds (meant for retail investors) and Portfolio Management Services (PMS) or Alternative Investment Funds (AIFs) meant for HNIs, has multiple advantages for investors.

1. Being within the fold of Mutual Funds, it has the taxation advantage of MFs. MFs per se are tax-free trusts, hence profits booked accrue as such to the fund. PMS and AIF categories I and II are pass-through for taxation purposes;

2. SEBI allows short position in SIFs upto 25 percent of the portfolio. MFs are long-only funds, which means when the fund manager has a view on a stock price moving up, and it actually moves up, the fund benefits. If the fund manager has a view on a stock price moving down, s/he cannot benefit by going short, in a MF. It is possible in SIFs.

3. Like MFs, SIFs can use derivatives for hedging i.e. taking short positions on stocks in the portfolio. This reduces volatility in the fund when the market is volatile

 

Current Status of SIF in India

The first SIF was launched in October 2025. As per AMFI data, as on October 2025, there were four investment strategies (funds), more than 10,000 investor folios, and more than Rs 2,000 crore of AUM. This indicates ticket size of approx. Rs 20 lakh per folio, against the regulatory minimum of Rs 10 lakh. As on March 2026, there are fourteen investment strategies (funds), more than 44,000 folios, and more than Rs 10,000 crore of AUM. The average ticket size per folio has moved up to approx. Rs 24 lakh per folio.

As per industry data, there are seventeen investment strategies (funds), plus three in NFO i.e. total twenty funds across twelve AMCs. These funds are across strategies allowed by SEBI, which are equity long-short, hybrid long-short, equity ex-top-100 long-short, active asset allocator and sector rotation. Reportedly, there are more AMCs and NFOs in the pipeline. However, SEBI has also allowed debt long-short and sectoral debt long-short strategies; we are yet to see fund launches in debt categories.

SIFs Status Review

The funds launched so far, are mostly conservative in nature. This conservatism is partially due to the derivative short positions allowed by regulations. While short positions upto 25 percent of portfolio is allowed, it has been used by fund managers only to a limited extent, much less than 25 percent. This is due to market movement or reading of market movement by fund managers. The major reason for calling the approach conservative, is the use of derivatives for hedging. When the fund manager takes a short position in a stock which is there in the portfolio, is reduces volatility when the market is volatile.

Net-net, the SIFs available are mostly a variant of certain MF categories. In MFs, there is a category called Balanced Advantage Fund (BAF), where there is an exposure to equity, usually more than 65 percent to make it eligible for equity taxation, and the balance is in debt. Part of the equity exposure is hedged, to make BAF funds defensive against equity market volatility. There is another MF category called Equity Savings Fund (ESF), where there is a defined range of usual (unhedged) equity, hedged equity and debt. Most of the SIFs on offer are comparable to, or a variant of, BAFs or ESFs. There are relatively aggressive strategies as well, like equity ex-top-100 funds.

In the initial stage of an industry e.g. SIFs being seven months old, it is good to be conservative in approach – the baby steps so to say. However, going forward, there should be more funds on offer, on the risk-return spectrum. This is about the availability basket for investors across the risk-return scale.

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Final Thoughts on SIF Investments

The initial purpose of the regulator was to make an investment vehicle available in the space between MFs and PMS. The rationale was, certain market participants e.g. stock brokers offer the service of investing money for clients, by investing in stocks, for an amount much lower than Rs 50 lakh. In a way this is a portfolio management service, without obtaining PMS license from SEBI. The ticket size of Rs 10 lakhs sits in that space. Arguably, certain high-risk categories may be allowed in SIFs.

The limit on stock exposure is 10 percent in MFs and SIFs, whereas there is no limit in PMS. The stock limit may be enhanced by allowing new high-risk categories in SIFs. Moreover, SIFs cannot take leveraged position using derivatives, which only category 3 AIFs can. Leverage to a certain extent, say 125 percent of corpus, may be allowed, in a new high-risk SIF category. This would be targeted to those investors who drift to PMS for the high-risk differentiated strategies.

Author: Joydeep Sen, a corporate trainer (financial markets) and Finance author

This article was originally published in Mint as SIFs at seven months: baby steps now, broader risk canvas ahead

The “Melody” Incident: A Case of various Behavioural Bias in Indian Markets

Modern finance often portrays investing as a disciplined arena governed by sophisticated algorithms, rigorous data, and calculated risk management. Standard economic theory dictates that markets are efficient and asset prices perfectly rational. Yet, human nature defies these defenses reminding us that markets are driven by flawed, emotional individuals. This psychological vulnerability was laid bare in May 2026, when a playful diplomatic exchange between Indian Prime Minister Narendra Modi and Italian Prime Minister Giorgia Meloni sparked a bizarre phenomenon on the Indian stock exchange: the “Melody” incident.

Catalyst: The Toffees, Modi Meloni Melody incident

During an official visit to Rome, PM Modi presented PM Meloni with a box of India’s iconic Melody toffees. The video of the exchange instantly exploded across social media. Within hours, retail investors rushed to their brokering apps. Looking to capitalize on the viral hype, they piled into shares of Parle Industries, sending the stock surging to hit its upper circuit limit.

The Problem: But the irony here was Parle Industries has absolutely nothing to do with Melody toffees.

The Reality: Melody toffees are made by Parle Products, a privately held company that is unlisted.

The Mistake: Parle Industries is a micro-cap infrastructure, real estate, and waste recycling firm.

This dramatic case of mistaken identity was a classic textbook case of behavioural bias – a systematic error in thinking that completely clouds human judgment.

The Behavioural Biases behind the Blunder

The “Melody” incident serves as an active case study for several core behavioural finance concepts. When retail money poured into the wrong stock, three primary biases were operating in tandem:

1. Heuristics and the Availability Bias

Human brains are wired to find shortcuts (heuristics) to make quick decisions rather than spending hours digging through data. The Availability Bias causes people to overestimate the importance or relevance of information that is fresh in their minds.

When “Parle” and “Melody” dominated social media feeds, investors didn’t stop to verify corporate structures. Their brains took the easiest, most available shortcut: Melody is trending → Parle makes Melody → Buy Parle on the stock exchange.

2. Representativeness Bias

This bias occurs when investors assume that because two things share a superficial characteristic, they must be fundamentally the same. Because “Parle Industries” sounds nearly identical to “Parle Products,” investors assumed it to be the same.

The international market also saw a lapse in investor’s logic in 2021 when Elon Musk tweeted “Use Signal” (referring to the messaging app), investors drove up the shares of Signal Advance Inc. a small and unrelated medical device company from $0.60 per share to $70 per share. Similarly, during the pandemic, investors repeatedly bought the wrong “Zoom” stock (Zoom Technologies instead of Zoom Video Communications).

3. Herd Behaviour and FOMO

In the digital age, social media acts as an absolute accelerant for market euphoria. The recent SEBI Investor Survey 2025 study noted that an alarming number of retail investors depend strictly on social media trends and influencers to make investment decisions.

When investors saw the volume and price of Parle Industries moving upward, “Herd Behaviour” took over. Driven by the “Fear of Missing Out” individuals blindly followed the crowd.

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Takeaways

The Melody incident is highly amusing, but it carries a sobering lesson for the retail investors who are key contributors to the trading boom in India. Do your own research for what you see/hear on Social Media for “all that glitters is not gold”. When you purchase a stock without knowing its core business, its capital structure, or whether it even owns the product you are betting on, you aren’t investing – you are gambling. Eventually, the market realizes the mistake. When the excitement dies down, the stock price drops, and the late buyers are left losing their money. The next time a piece of pop culture or geopolitics takes over your social media feed, remember the golden rule of behavioural finance “Pause, filter out the noise, and always check the underlying business before you click ‘Buy’.”

As rightly said by Fred C Kelly, “Crowd enthusiasm, always greatest at the peak of a market, more often leads sensible men to behave foolishly. Nevertheless, the aim should be to have one’s self well enough in hand to be immune to outbursts of mass emotion.”

Author: Mitu Bhardwaj, DGM, CCC. Author works for NISM and views are personal.

How to Make an Investment Portfolio for Long-Term Wealth Creation

In the world of investing, few studies have had as profound an impact as the work of Gary Brinson, Randolph Hood, and Gilbert Beebower. Their research, first published in 1986 and later updated in 1991, concluded that investment policy – the long-term allocation of assets across categories – explains the vast majority of portfolio performance, while short-term strategies like market timing and stock selection play a relatively minor role. Although their findings focused on institutional portfolios, the underlying principle applies just as strongly to individual investors.

For an individual, portfolio design can be broken down into four steps:

1. 1- Asset Class Inclusion/Exclusion – Deciding which broad categories (equities, bonds, real estate, commodities, cash, etc.) belong to your portfolio.

2. 2- Asset Class Weighting – Determining the percentage allocation to each category.

3. 3- Tactical Shifts – Taking an overweight or underweight position on different asset classes depending on market conditions.

4. 4- Security Selection – Choosing individual stocks, bonds, or funds within each category.

 

The first two steps define investment policy, while the latter two define investment strategy.  Individual investors are impacted the most by the first two steps – their choice assets classes and the weight of each asset class in their portfolio. Market timing and stock selection contributes only marginally to their portfolio returns over the long run. The reasons for this are many:

• Most individual investors are saving for long-term objective – retirement, children’s education, or wealth preservation. As these goals span decades, a well-defined investment policy ensures that the portfolio remains aligned with these objectives regardless of short-term market fluctuations.
• Individual investors are prone to behavioural pitfalls like chasing performance, panic selling during downturns, or overconfidence in their stock-picking skills. These biases often erode returns and a clear investment policy makes them less likely to make impulsive decisions.
• The benefits of diversification come from spreading investments across asset classes and not across individual securities.
• Attempting to time the market or stock selection incurs transaction costs that can erode net returns.

Beyond returns, investment policy provides peace of mind. Knowing that your portfolio is aligned with your long-term goals reduces anxiety during market downturns. Instead of asking, “Should I sell now?” the policy-oriented investor asks, “Does my allocation still match my objectives?” This shift in perspective fosters resilience. By focusing on asset class inclusion and weighting, individuals can create portfolios that are diversified, cost-efficient, and aligned with their long-term goals. Timing and selection may add marginal value, but it is policy that drives outcomes. Individual investor interests are best served if they clearly define their policy, stick to it, and let time and discipline work in their favour.

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The shift towards passive investing is one of the defining trends of this decade. According to NSE Indices’ Nifty Passive Insight report, released in March, assets under management (AUM) in passive schemes stood at ₹14.84 trillion as of end of February, up ninefold from ₹1.63 trillion in 2020.

The passive universe now spans 677 schemes and 54 million folios, with 67% of AUM in equity, and more than half of that benchmarked to the Nifty 50.

The foundation traces back to Nobel laureate William Sharpe, who argued in his 1991 paper The Arithmetic of Active Management that, after costs, the average actively managed dollar must underperform its passive counterpart. The Nifty 50 offers exposure to India’s largest companies at expense ratios of 0.10–0.20%, a fraction of the 1.00–1.75% typically charged by active large-cap funds. Low-cost diversification sits at the core of index investing.

How 50 Stocks Shape the Performance of an Index Fund

A useful starting point is the broader market. The NSE’s April Market Pulse report measures India’s overall market concentration using the Herfindahl-Hirschman Index (HHI). That figure has fallen from 202 in 1995 to 81 in 2025, reflecting a steady dispersion of market capitalisation across a wider set of companies. The markets as a whole are becoming less concentrated over time. The question for an index investor is whether that dispersion shows up in their fund.

The HHI for the Nifty 50, calculated as the sum of the squares of constituent weights, averages 457 across annual factsheets from March 2017 to March 2026. The corresponding figure for the Nifty Next 50 is 244.

By conventional thresholds, where an HHI above 1,500 signals concentration, neither index appears concentrated at the stock level. A more intuitive lens is the effective number of stocks—how many equal-weight names the index behaves like. On that measure, the Nifty 50 averages 22, while the Nifty Next 50 comes in at 41. Two indices, identical stock counts, very different weight distributions.

Key Regulatory Footnotes Every Index Fund Investor Should Know

Securities and Exchange Board of India regulations include a clear safeguard: no diversified equity fund may invest more than 10% of its net asset value (NAV) in a single stock. Passive funds are exempt because they replicate an index. When HDFC Bank’s free-float market cap reaches 13% of the Nifty 50, every fund tracking the index holds it at that weight, with no discretion.

The framework is deliberate and appropriate, but it means the concentration limits governing active funds do not apply to passive ones by design.

Emerging Concerns Around Index Funds and Market Concentration
Academic work on passive investing has begun to examine a related dynamic. As more capital flows into market-cap-weighted indices, the largest stocks attract proportionally greater passive inflows, further expanding their market capitalisation and index weight. Some researchers argue this can amplify skew over time, dampen price discovery and raise correlations among index constituents. The long-term systemic effects of passive investing at scale remain an open question.

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Index Fund Analysis: What the Data Actually Reveals

None of this is an argument against the Nifty 50 or passive investing. The cost advantage, behavioural discipline and long-term performance record are well established. The Nifty 50 is simply a useful case study in one respect: diversification is not just a function of stock count.

The HHI data offers a clearer view of what investors own. When roughly 40% of an index sits in five stocks and more than half in ten, it is worth knowing. The concentration is not limited to individual names; it extends to sectors as well. The Market Pulse report (April 2026) notes that financials now account for 25% of India’s total listed market capitalisation, up from 10% in 1995. Within the Nifty 50, financial services make up about 35% of index weight as of March 2026.

Analysis of NSE index factsheets from 2017 to 2026 shows sector-level HHI has averaged above 1,100 over the past decade, with financial services, IT and refineries together accounting for 52–66% of the index each year.

For investors building passive portfolios, the practical questions are straightforward: how are weights distributed, how has that distribution evolved, and does it align with the intended outcome? The answers shape not just which index to track, but how to combine exposures across segments to achieve the diversification that passive investing, at its best, can deliver.

Author: Dr. Rachana Baid, Professor & Dean- Academics, NISM

This article was originally published in The Mint : https://www.livemint.com/money/index-funds-fewer-stocks-matter-more-than-you-think-passive-investing-11777045409568.html