Changeover At Sebi

The new chief of Securities and Exchange Board of India (Sebi) has task cut out for him/ her under challenging economic environment.

Nervous investors have eroded a fifth of Sensex index over the past year; foreign portfolio investment is flowing out of the country; new share offerings and mutual fund sales are slowing; and the government’s disinvestment program has been reduced to a pipedream. Plus the RBI has just sounded caution on inflation, low-capacity utilisation, stalled projects, muted new investments, and indicated a bias towards holding rates for now, leaving investors perplexed.

Further clouding the domestic gloom are volatile global trends: US stumped after first rate increase in a decade; Europe and Japan easing to support growth, with the latter reducing rates to negative; and China running out of steam to cut growth forecast. The events are hurting global commodities, currency and investor behaviour that’s potentially hurting countries like India that depend on foreign investment for growth.

“Sebi in the current environment has to help create conditions so that investor money reaches the market,’’ says Tejesh Chitlangi, partner at IC Legal, and an expert in Alternative Investment Funds and Sebi regulations.

The regulator therefore needs strong hands steering it. The front runners for the job are SBI chairperson Arundhati Bhattacharya, Rajeev Kumar Agarwal, Sebi board member, and Ramesh Abhishek, former chairman of Forwards Market Commission that’s now merged with Sebi.

Fortunately for India, Sebi, like many of its other institutions have smooth handovers that help the incoming chief to build further on the good work of predecessors. Since its inception, Sebi has had chairmen from varied backgrounds — S.A. Dave, S.S. Nadkarni, M. Damodaran from IDBI, G.N. Bajpai from LIC, and G.V. Ramakrishna, D.R Mehta and U.K. Sinha from the government.

Among the major initiatives that Sinha, whose term ends this February, will be credited for include new takeover code, tightening insider trading rules, enlarging space of stock exchanges, changing rules for mutual funds to attract retail investors, making it smoother for global investors to buy local stocks and bonds, and taking a deep personal interest in issues that make it tough for startups to raise money, function and exit.

With his vast experience in finance ministry, Unit Trust of India and years at Sebi, Sinha enforced the regulator’s power to hand out strict penalties. Directors of PACL were slapped with a penalty of Rs 7,269 crore, DLF top executives barred from accessing local capital markets for three years, and Sahara chief sent to jail in May 2014.

Other than filing his big shoes, the new chief will have to increase focus on overseas funds flows.“The chief will have to strengthen laws on monitoring and tracking hot money that often comes through participatory notes,’’ says Chitlangi.

The key lies in the institution functioning swiftly and effectively.