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.)
Companies where the promoter holding was more than 75% at the end of September quarter include DLF, Jet Airways, Wipro, Tata Communications, Tata Tele, Sun TV, L&T Finance, Omaxe, Fortis Healthcare and Reliance Power
New Delhi: About 200 listed companies with promoter stake of more than 75% are set for some tough talk from Securities and Exchange Board of India (SEBI), which is mulling options including monetary penalties and eventual delisting of non-compliant entities, reports PTI.
The deadline for all private sector listed companies to bring down their respective promoter shareholdings to 75% or below is now just seven months away and the regulator has begun the process of identifying those entities that have initiated any process for adhering to this requirement.
"In the first phase, the SEBI has initiated a consultative process with such companies, wherein the regulator is asking them to provide a plan of action to achieve compliance and to resolve all outstanding issues," a senior official said.
The regulator will also inform these companies, whose number is estimated to be more than 200, about the potential penalties and other regulatory actions they might face in case of non-compliance, he added.
In the second phase, SEBI plans to ask stock exchanges to monitor compliance to these 'plans of action' on steps being taken to increase the public shareholding to a minimum of 25% and issue notices to the non-adhering firms.
At the same time, investors in these companies would also be informed about the potential risks they face due to penal actions to be taken against such entities, the official added.
Major companies where the promoter holding was more than 75% at the end of last quarter (September 30) include DLF, Jet Airways, Wipro, Tata Communications, Tata Tele, Sun TV, L&T Finance, Omaxe, Fortis Healthcare and Reliance Power.
Such companies also include Bajaj Corp, Essar Shipping, Essar Ports, Jaypee Infratech, Mahindra Holidays, Muthoot Finance, Adani Enterprises, Adani Ports, Oberoi Realty and JSW Energy.
Together, these companies would need to sell shares worth an estimated amount of more than Rs30,000 crore to meet the required shareholding norms.
However, SEBI is worried over the fact that only a few companies have taken steps in the recent past to meet the requirement, although the market conditions have improved.
Some of the firms that have met the requirement in recent months include Godrej Industries, Muthoot Capital and Adani Power, while subsidiaries of a few multi-national companies have also announced plans to meet the deadline.
Among still non-compliant companies, some have said they intend to meet the deadline but no plans of action have been provided in most of the cases.
Of the total, more than 50 companies currently have a public holding of 10% or below, making it difficult for them to meet the deadline, while around 30-40 companies would need to sell just one% or less shares to adhere to the guidelines.
The public sector companies have time till August 2013 to achieve a minimum public shareholding of 10%. Any action against the public sector companies would be discussed at a later stage as they have more time in hand and the minimum public shareholding limit is also lower in their case.
Also, the number of PSU companies with public shareholding of below 10% as of now is less than 20, although level of non-adherence is much larger as some of them have public holding of one% or below.
The SEBI has provided various options over the recent months to help the companies meet minimum public shareholding criteria, by permitting options of rights/bonus issuances of shares, as also new routes like Offer for Sale (OFS) and Institutional Placement Programme (IPP).
Besides, in exceptional situations, where any company has a special difficulty in following the prescribed methods because of reasons peculiar to it, SEBI Chairman is authorised to approve a specific solution on case-to-case basis.
The listed entities desirous of achieving the minimum public shareholding requirement through other means can approach SEBI with the appropriate details, while companies can also seek any relaxation within the available methods.
However, SEBI is not willing to extend the deadline any further, which was set way back in 2010, the official said.
SEBI is even willing to allow 'corporate restructuring' as a means of achieving minimum public shareholding, but the companies desirous of using this method are required to seek prior approval from the regulator, he added.