Yahoo Finance India’s $11 Billion Quant Mutual Fund Faces Regulator Inquiry
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A probe into a rising star of India’s fast-growing mutual fund world for alleged front-running is putting a fresh spotlight on the nation’s attempts to police its booming stock markets.
India’s securities regulator is examining trades by Quant Mutual Fund employees based on alerts generated by the regulator’s surveillance system, people familiar with the matter said, adding that the probe could reach beyond top traders. The multi-asset investment manager said in a statement that it has received inquiries from the regulator and is fully committed to complying with the review.
The investigation is the latest example of the challenges emerging from India’s market boom, which has been fueled by rising wealth and a global investor preference for the country after China’s growth prospects soured. Quant Mutual, India’s fastest growing mutual fund, has been a key beneficiary of the surging inflows. Assets have soared to 930 billion rupees ($11.1 billion) from about $20 million in December 2019.
Front-running is the trading of stocks by someone privy to information about a large impending transaction that will move prices. As in many markets, the practice is illegal in India. Similar investigations in recent years have focused on employees of investment companies who used knowledge of impending orders by their firms to profit via their personal accounts.
“If this turns out true, it will dent market sentiment at a time when stocks are very richly valued,” said Kranthi Bathini, equity strategist at WealthMills Securities in Mumbai. “Smaller stocks held by the mutual fund could be under pressure.”
Quant Mutual said it will provide market regulator Securities and Exchange Board of India with all necessary support including supplying data on a regular basis. Stocks held by the manager slipped on the news. RBL Bank Ltd. fell as much as 4.4%, while National Aluminium Co. fell 4.7%.
The regulator searched the fund’s Mumbai headquarters on suspected front-running, local news provider Moneycontrol had reported earlier, citing people it did not identify.
A search and seizure operation was conducted at locations in Mumbai and Hyderabad, Moneycontrol said, citing one person. Quant dealers and people connected with the case were questioned on Friday, the report said, citing sources.
“We are dedicated to maintaining transparency and adherence to regulatory standards,” Quant Mutual Fund said in the statement, without giving details about the regulator’s actions or inquiry. Representatives of SEBI did not respond to calls and an email seeking comment.
Quant Mutual was first incorporated in 1996, according to its website, though growth really took off after it acquired Escorts Mutual Fund in 2018 and relaunched. The asset manager has been using artificial intelligence and big data techniques for more than a decade, before it says such terms came into vogue. The firm also says it believes in close monitoring of behavioral data points of market participants and studying market sentiment.
Founder Sandeep Tandon started his career in money management in the early 1990s as a trainee with GIC mutual fund, a joint-venture partner with George Soros in India. He later worked at IDBI Asset Management, ICICI Securities, Kotak Securities and Refco, a global derivatives firm.
The latest probe has hallmarks of a 2022 investigation of another mutual-fund business. Axis Asset Management Co., one of India’s bigger mutual fund managers, terminated employment of two employees, including its chief dealer, as part of the probe.
Authorities, who are trying to damp down risks in the finance ecosystem, have lately introduced new rules that could crimp growth elsewhere. The markets regulator has warned of potential price manipulation for initial public offerings linked to outsized lending to retail clients. It has also asked money managers to stop accepting fresh money into products that invest in overseas exchange-traded funds.
--With assistance from Chiranjivi Chakraborty and Abhishek Vishnoi.
(Updates with comment from equity strategist, further details throughout.)
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