Finance Ministry has requested all states and union territories to set up such a committee to enable enhanced information-sharing among the concerned agencies
New Delhi: With an aim to safeguard the investors from possible frauds involving collective investment schemes, the government has proposed a high-level committee of members from Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Corporate Affairs Ministry and Economic Office Wing (EOW) of state police departments, reports PTI.
The Finance Ministry has requested all states and union territories to set up such a committee to enable enhanced information-sharing among the concerned agencies.
The committee would help enable "enhanced sharing of information among the concerned agencies regarding unregulated activities and entities raising money from public with a view to defraud people," Minister of State for Finance Namo Narain Meena informed the Lok Sabha in a written reply.
The minister was replying to a question on whether the International Advisory Board of capital market regulator SEBI has underlined the need for an independent and separate regulator for such unregulated investment schemes and the steps taken by the government in this regard.
The minister said that "the Department of Financial Services has requested all the state governments/union territories to set up a committee, including representation from the Reserve Bank of India, SEBI, Ministry of Corporate Affairs and the Economic Offence Wing of the State Police..."
The International Advisory Board of SEBI in its last meeting on November 3-4 had discussed various regulatory issues with regard to the unregulated collective investment schemes and capital adequacy norms.
The recommendations of this International Advisory Board (IAB), along with the action taken by the regulator thereon, are reported to SEBI's board.
The IAB had observed that the regulation of such schemes is not the primary objective of a securities market regulator and would require substantial resources.
It was also underlined that such schemes are often localised and there is a criminal enforcement angle attached to the regulation of such schemes.
It was, therefore, suggested that state government's role is very important for regulating these schemes, while the need for an independent and separate regulator with sufficient resources was also underlined.
Last month, SEBI Chairman UK Sinha had also said that operators of such schemes take benefit of loopholes in the existing regulatory framework, although the regulator takes action whenever it suspects anything wrong and gets evidence.
"People make all sorts of excuses - in some cases they claim they are under the state government, in some cases they are saying they are registered with the Ministry of Corporate Affairs, in some cases they are saying they are housing companies and in some cases they claim to be NBFCs.
SEBI is looking at regulations in various countries, including major Asian financial markets like Singapore and Hong Kong, to fine-tune its own disclosure norms
New Delhi: With an aim to preventing insider trading, capital markets regulator Securities and Exchange Board of India (SEBI) is looking at regulations in overseas markets to tighten disclosure norms for the listed companies and other market entities in India, reports PTI.
While SEBI has recently announced various additional disclosures required to be made by listed companies and intermediaries like brokers, investment bankers and mutual funds, it is looking at stricter norms for compliance, as also further necessary details required to be made public.
In this regard, the SEBI is looking at regulations in various countries, including major Asian financial markets like Singapore and Hong Kong, to fine-tune its own disclosure norms, a senior official said.
SEBI might find regulations within Asian markets more relevant for disclosures to be made by market intermediaries, although norms similar to those in Western countries like the US and UK could be considered when it comes to disclosures regarding 'price sensitive information' by listed companies.
The steps are being taken amid a growing trend of companies announcing some key business developments outside the regulatory framework, while many companies also failing to make the routine disclosures like quarterly results, board meeting announcements and shareholding patterns in time.
The existing norms provide for largely a generic set of disclosure requirements for listed companies and are contained in the 'Listing Agreement' they sign with the stock exchanges.
The Listing Agreement has six categories of 'price sensitive information' required to be disclosed by companies, while there is also a category of 'any other information' having a bearing on their operations and share prices.
In the recent months, SEBI had already asked companies to file a 'business responsibility report' every year, while disclosures have been tightened for audit observations made on their accounts as well.
Besides, SEBI had also sought additional disclosures from the mutual funds and investment bankers, including those about their track records.
SEBI has developed quite an advanced surveillance and investigation system, which many foreign regulators are also looking to emulate and it now wants to make its disclosure regulations as well among the best in the world, the official said.
SEBI is of the view that a strong disclosure regime also helps in developing an equity culture in the country as the investor confidence tends to improve in a better-regulated market environment, besides working as a check on possible market manipulative activities, he added.
There is a possibility that with a rise in the market, retail investors will return to market only to bite the bullet when irrational exuberance gets replaced with realism
The upward movement in the stock market in the past three days has taken many by surprise, including those who have claimed themselves to be conventional bulls. Around 800 points rise in the Sensex without any substantial changes in the ground reality, raises questions which are difficult to answer. It is pertinent to note that just two weeks back markets across world were worried about the US “fiscal cliff”. Without any solution of the fiscal cliff issue, the sense of déjà vu is back in leading markets across world including the Indian market. Some experts are attributing this rise in the market to improvement in sentiments while some others are pointing out that FIIs (foreign institutional investors) have once again started showing keen interest in the Indian stock market.
Whatever be the logic of those who argue in favour of the upside movement in the market, there are good enough indicators pointing out the beginning of a new phase of “Irrational Exuberance”. Irrational exuberance, here, does not essentially reflect what Alan Greenspan stated in 1996 but what it definitely reflects is that investors have once started overlooking intrinsic value of stocks and chasing stocks believing that all is well and the markets will continue to rise.
Here are three factors which reflect why it may be return of irrational exuberance in the market:
Economic fundamentals continue to remain weak: There have been no substantial changes in the broad economic fundamentals either at the global or the local level. In fact, the broad fundamentals have weakened. The GDP (gross domestic product) data released on 30th November shows that economic growth continues to remain sluggish with Q2, 2012 GDP growth rate at 5.3%. There is no sign of GDP growth picking up but there is only hope. Are there any obvious reasons for growth to pick up even next year? Hopes and expectations don’t contribute to growth but investments do. Where will the investments come from? FDI, insurance and aviation reforms are not good enough for this. Domestic investment environment need to improve. The problem does not end here. The picture on the fiscal deficit front continues to remain grim, as well. As per the latest report, the fiscal deficit in the first seven months of current financial year has already reached 72% of target for the full year, indicating the fact that there is going to be slippage on fiscal deficit front. Higher fiscal deficit would mean rise in inflation and lesser probability of drop in interest rates.
Rupee depreciation and external front of the economy: The rupee continues to play the game of hide and seek. The volatility in the currency with predominant downward bias is not good for the economy. If the rupee continues to fall, attracting investments in the stock market will be challenging. It is obvious that a depreciating rupee means lesser return for foreign investors. It is true that FIIs have brought some money into stock market in the month of November but this looks like hot money waiting to return in the second half of December 2012. Another worry for currency is the burgeoning trade deficit. The trade deficit for April-October 2012-13 was estimated at $110,212.91 million which was higher than the deficit of $106,805.58 million during April -October 2011-12. The rising trade deficit will put pressure on the currency further.
Inflation continues to high and interest rates are unlikely to come down soon: There is very little respite on the inflation front and this could result in the RBI (Reserve Bank of India) continuing with the tight money policy in the days to come. If the interest rate remains high, growth will continue to remain retarded. In spite of RBI mentioning that the cost of capital is not a deterrent for economic growth, many small businesses continue to suffer because of the rising rate of interest and investment demand in general is not picking up.
Some people would argue that stock markets are not always driven by fundamentals alone and hence equating movements in the market to ground realities is not a fair assessment of things to come. However, we cannot ignore the fact sooner or later the stock market will start reconciling itself with the ground reality. There is a possibility that with a rise in the market, retail investors will return to market only to bite the bullet when irrational exuberance gets replaced with realism.
Read other articles by Vivek Sharma, here.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)