Allegations mount against India market regulator

The Securities and Exchange Board of India (Sebi) is facing a credibility crisis due to a series of serious allegations against its chairperson, Madhabi Puri Buch. These charges include claims of conflicts of interest, mishandling of investigations, and internal dissent within Sebi. The controversies come at a time when India’s equity markets are performing exceptionally well, with substantial foreign and retail investment inflows.

Key Points:

1. Allegations Against Madhabi Puri Buch:
   • Hindenburg Research Claims: The US-based short-seller accused Buch and her husband of holding investments in an offshore fund linked to the Adani Group, suggesting it influenced Sebi’s delay in investigating allegations of accounting fraud and market manipulation against Adani.
   • Congress Party Accusations: Claims include receiving rental income from a company under investigation and holding an “office of profit” at ICICI Bank, where she supposedly benefited from Employee Stock Ownership Plans (Esops) post-employment.
   • Subhash Chandra Goyal’s Allegations: Goyal, facing regulatory action, has accused Buch of being corrupt and vindictive, blaming her for the collapse of a merger between Zee Entertainment and Sony Enterprises.
2. Internal Issues:
   • Employee Protest: On September 5, Sebi staff staged a rare protest demanding Buch’s resignation, citing a toxic work environment and abusive management practices. Around 1,000 employees had previously complained about the work culture.
3. Public and Government Response:
   • Sebi’s Stance: The regulator has dismissed the employee protests as misplaced and suggested that junior officers might have been misled by external elements.
   • Government Silence: There has been no official response from the government, which is expected to address the situation to maintain investor confidence.
4. Potential Impact on Markets:
   • Investor Sentiment: Despite the current strong performance of the Indian stock market, there is concern that ongoing controversies could impact investor confidence. Institutional investors might withdraw if they perceive regulatory risks, which could affect retail investors as well.
5. Future Speculations:
   • Tenure Concerns: Buch’s tenure as Sebi chairperson is set to end in February 2025. There is speculation that her appointment might not be renewed, and a resignation or suspension could be seen as an admission of guilt.

Analysis:

The situation poses a significant challenge not just for Sebi but for the broader Indian financial regulatory environment. Transparency and accountability in regulatory bodies are crucial for maintaining market integrity and investor confidence. The outcome of this controversy could influence how other Indian regulators address disclosure and compliance issues.

For investors and market participants, the way the government and Sebi handle the situation will be critical in shaping future perceptions of India’s regulatory framework.