The Growing Influence of AI in India's Stock Markets

AI's Expanding Role in Stock Market Regulation

According to Tuhin Kanta Pandey, the chief of the Securities and Exchange Board of India (SEBI), the significance of Artificial Intelligence (AI) in stock markets is set to increase substantially. He announced that SEBI is developing a comprehensive framework to regulate AI's application in the financial sector. Pandey emphasized that AI will play a crucial role in enhancing surveillance, risk management, fraud detection, and investor services. However, he also pointed out the associated risks, including issues of transparency, bias, data privacy, cybersecurity, and accountability. Detailed guidelines for the responsible implementation of AI in capital markets will be released by SEBI, he stated during the ET NOW Markets Summit 2026.

Furthermore, he mentioned that SEBI's AI strategy for regulated entities will incorporate the AI supervisory toolkit from the International Organization of Securities Commissions (IOSCO). The next steps will be informed by recommendations from an expert panel tasked with creating a five to ten-year roadmap for market infrastructure institutions.

Resilience of India's Capital Market

Pandey noted that despite facing numerous challenges—ranging from tariffs and oil price fluctuations to disruptions caused by AI and foreign portfolio investor (FPI) outflows—India's capital market and investor confidence have remained strong. He highlighted that the market has successfully raised over ₹1.5 lakh crore through equity and corporate bonds, and the initial public offering (IPO) pipeline continues to look promising.

AI's Impact on Capital Markets

Discussing the transformative potential of AI in capital markets, Pandey reiterated its importance in regulatory frameworks. He stated that while AI can enhance various aspects such as surveillance and risk assessment, it also poses risks related to transparency, bias, and data protection. Over the years, India's capital market infrastructure has undergone significant digitization, which has improved accessibility and efficiency for investors. He mentioned reforms like the T+1 settlement cycle and the reduction of IPO timelines to T+3, which have bolstered investor experience and market resilience.

Identifying AI Risks

Previously, SEBI had raised concerns regarding the risks associated with AI tools in capital markets. In a recent circular, SEBI pointed out that the rapid advancement of technologies, including AI-driven vulnerability identification tools, has introduced new risk dimensions for regulated entities. These tools could potentially increase risk exposure by identifying and exploiting existing vulnerabilities at an unprecedented speed and scale, raising concerns about data confidentiality and the reliability of outputs.