The Securities and Exchange Board of India has warned mutual funds against market manipulation and steer clear of ramping up prices.
Senior Sebi officials had met chief executives of asset management companies on September 8, earlier this week in order to take stock of the market and also to verify whether adequate risk control measures had been taken by fund houses.
According to sources, Sebi warned mutual funds to be careful of small and mid-cap stocks which have been seeing a sudden spurt in prices.
Industry officials, familiar with developments, said that the meeting was called to focus on measures the fund houses should take to avoid being trapped in the bull run.
The market has been going down during the last two trading sessions, after a continuous successive days of rise.
Mutual funds have been playing safe in the market and have been net sellers thus far in the current month, selling equities worth Rs 428 crore (Rs 4.28 billion).
In fact the strategy adopted by them has been to sell at every rise, while they have been buying when the market goes down. On September 10, they were sellers of Rs 99 crore (Rs 990 million) net, while on Thursday they were net buyers of around Rs 10 crore (Rs 100 million).
Any bull rally usually has an impact on second rung stocks which go up irrespective of their fundamentals, riding on the general market optimism.