Cogencis, Wednesday, Jan 23
By Chiranjivi Chakraborty
Silence can be a double-edged sword; it can be a beacon of strength and maturity or a symbol of weakness and guilt.
For the investors of Sun Pharmaceutical Industries Ltd, the prolonged silence of the Securities and Exchange Board of India on reports of a probe against the company is proving to be very costly.
SEBI's reticence on allegation of lapses on corporate governance front and shoddy tax practices made in two separate whistleblower complaints against the company is turning out to be another public relations disaster for the regulator.
In December, Business Standard reported that SEBI is probing the country's leading drugmaker for corporate misgovernance. Shares of the company tanked 26%, causing a wealth destruction of nearly 245 bln rupees in a span of 10 days.
On Jan 17, Moneylife reported another whistleblower complaint made against the company with SEBI. On Jan 17 and Jan 18, the stock sank as much as 23% eroding investor wealth worth 201 bln rupees.
The severe reaction to both the media reports highlighted the panic that set in among investors lacking proper information and fearing the worst. SEBI's silence on the matter on both the occasions fuelled speculation and misinformation, instead of abating them.
Some investors, Cogencis spoke to, expressed their concern and frustration at the lack of communication from SEBI.
First of all, the regulator must promptly deny or accept the receipt of a complaint by a whistleblower.
Second, it must take cognisance of the gravity of the situation at hand. The allegations that are being made are of grave nature and against a company worth a trillion rupees.
The quantum of wealth destruction and domino effect it could have on the rest of the market and general investor psyche should not be underestimated by the regulator. For a regulator that champions prompt disclosures by companies, such lethargy is avoidable.
Third, time and again the regulator lets the market dictate its course of action instead of taking control of the narrative and dealing with an iron fist.
These very columns have advocated for the regulator to be more hands-on in its supervisory functions, but as much as investors want, the regulator still remains shy of exercising its might.
Had the SEBI broken silence in December and issued a statement acknowledging or refuting the probe it would have provided investors a framework to deal with the issue.
However, by staying mum, the regulator allowed the company and media to take hold of the narrative leaving investors ill-equipped to deal with the sort of price movement and wealth destruction seen on Jan 18.
In effect, SEBI's silence so far on the issue has indirectly caused a 400-bln-rupee dent in the market capitalisation of Sun Pharmaceutical.
For the investors, who have been forced to make decisions without the availability of complete information, a probe into the allegations made by the whistleblower will bring the much needed closure.
For the regulator, seizing control of the narrative will help bring confidence and certainty to the market. End
* SEBI seeks public views on commodity indices, index futures' design
* SEBI allows MFs to short call options as part of hedging strategy
ORDERS, ADJUDICATION PROCEEDINGS
* SEBI fines 2 entities 1.8 mln rupees for fraudulent trades (PTI)
* SEBI restrains Syncom Health, 6 others from accessing capital markets
REGULATIONS (Announced in the past three months)
* SEBI notifies norms to unify broker membership structure across segments
* SEBI rationalises number of panels at market infra institutions
* SEBI notifies an early warning mechanism to prevent diversion of client securities
* SEBI amends MF regulations to make new total expense ratio slabs applicable from Apr 1
DATA FROM SEBI
|FII/FPI net equity investment
|FII/FPI net debt investment
|DIIs net equity investment#
|| bln rupees
|DIIs net debt investment#
|| bln rupees
* Xelpmoc raises 103.5 mln rupees from anchor investors
* Xelpmoc Design sets price band at 62-66 rupee/shr
* Chartered Speed gets SEBI's approval for public issue
* SREI INFRASTRUCTURE shelves equipment finance co IPO (DNA)
* Lodha puts IPO on hold as markets stay choppy (DNA)
SEBI IN NEWS
* SEBI rejects L&T buyback on likely inappropriate debt-equity ratio
* SEBI considers reducing number of strikes to prevent misuse of options (BloombergQuint)
* Raymond confirms SEBI issued show-cause notice on procedural breach
* SEBI rejects L&T buyback on likely adverse debt-equity ratio
* SEBI may review mutual fund categorisation norms (TH)
* Sun Pharma says SEBI must probe shr price distortion post news story
Sources – Television, print, or Web editions of:
PTI–Press Trust of India, TH–The Hindu, DNA–Daily News and Analysis, BloombergQuint
Internet links: http://www.sebi.gov.in
# – Data not available for Jan 22
Compiled by Nivedita Yadav
Edited by Arshad Hussain