SEBI’s selective reaction

Regulators pretend all is well, in response to the most glaring violations we report

A few weeks ago, the Securities & Exchange Board of India (SEBI) decided to break its established practice of responding to the media only through its communications department and sent us an aggressive letter defending the actions it has taken to help investors of portfolio management schemes (PMS). The letter and our response have been published on our website. But it is the first time in nearly six years that SEBI has chosen to respond to an issue, that too in writing. Readers of Moneylife know that we have been fighting a two-year battle to force transparent disclosure of PMS performance. We filed an application under the Right to Information (RTI) Act, won an appeal to the central information commissioner and only then was the regulator forced to publish performance data of these schemes for high net-worth individuals. SEBI’s letter makes no mention of it, or of our pending appeal to put out more comprehensive information. However, it establishes that the regulator does read what Moneylife has been writing, fortnight after fortnight.

So what conclusions does one draw when SEBI does absolutely nothing about the brazen manipulation of stock prices that we have been reporting in our section called “Unquoted” for the past four years? Or, when it does nothing about the shenanigans of the McDonald’s franchisee, Westlife Development, whose share price is locked at the upper circuit with volumes of just one share on most days (the stock rose 220,000% without attracting any action from SEBI or the stock exchanges)? SEBI’s letter, more than anything else, is an indicator of the brazen lack of accountability of India’s independent regulators.

The parliament and its committees, which are supposed to act as natural checks & balances, do not go beyond cursory questions and have no time to examine the opaque answers. Meanwhile, the regulators are arming themselves with greater powers over people and companies which can be wielded with the same deadly effect as other investigation and enforcement agencies. SEBI is not alone in this attitude. The insurance regulator, conveniently located at Hyderabad, rarely responds to or engages with consumers.

Take this example. Moneylife’s Cover Story on how a barely literate retired railway ticket-checker, Arvind Injamuri, was a victim of shocking mis-selling by officials of Reliance Insurance. Some of the policies sold to him smacked of fraud and forgery. Yet, after our persistent follow-up, all IRDA (Insurance Regulatory Development Authority of India) did was to ask the company to cancel the policies and return the money with interest. The same Reliance Insurance has a corporate agent called AB Capital, which is enticing the gullible to buy insurance policies with the outrageous promise that they will receive interest-free loans of up to 10 times the premium. Moneylife Foundation’s insurance helpline has helped 15 people get back over Rs5 lakh. We have written to the regulator and also briefed him at a Mumbai seminar. No action or response.

The Reserve Bank of India (RBI) is far more open, but has no formal mechanism to engage with consumers. Even the chambers of commerce, whose collective financial muscle ought to give them some clout, only lobby the interests of powerful office-bearers. Consequently, new laws, with far-reaching implications for companies and for the national exchequer, have been hurriedly passed by parliament with perfunctory discussion. Educated, tax-paying savers need to start thinking about the long-term consequences of these issues.



Sudeep Sonawane

3 years ago

The article exposes the various regulators' inaction, transparency and questionable practices. Who will monitor the regulators?
- Sudeep Sonawane


3 years ago

Looks like the Indian & US regulators suffer from the "OSTRICH SYNDROME".. Their turning a blind eye or behaving deaf, dumb and mute is not going to make the problem disappear.. They need a rude Wake Up Call!!


3 years ago

This case of regulators not paying any heed to the concerns of the consumer or the end customers is evident in most sections of B2C dealings. In WB, despite a fraudulent chit fund company called 'Saradha' going bust causing huge losses to lakhs of investors, no attempt has been made to clean up the system in WB, forget ridding the entire nation of such 'criminal' minds. Be it in the case of Robert Vadra or DLF or Mc Donald's, clout and muscle matter more than the call of justice even as India is emerging as a super power and wants to project itself as amongst the finest democracies in the world. The world's largest democracy trumped by a few dirty corners of corruption, that's tragic.

SEBI notifies rules for angel investors
The new norms would help in encouraging entrepreneurship in India by financing small start-ups at a stage where they find it difficult to obtain funds from traditional sources of funding such as banks or financial institutions
Market regulator Securities and Exchange Board of India (SEBI) on Monday notified new norms for angel investors, who provide funding to companies at their initial stages. With the new norms, SEBI aims to encourage entrepreneurship in the country by financing small start-ups.
Angel investors are allowed to be registered as alternative investment funds (AIFs) — a newly created class of pooled-in investment vehicles for real estate, private equity and hedge funds, a gazette notification said.
In order to ensure investment by angel funds is genuine, the SEBI has restricted investment by such funds between Rs50 lakh and Rs5 crore.
Among other norms included, angel funds can make investments only in those companies which are incorporated in India. These funds needs to be invested in a firm for at least three years, can invest in companies not older than 3 years.
Further, investee company needs to be unlisted and with a maximum turnover of Rs25 crore and this firm may not be related to a group with a revenue of more than Rs300 crore.
Angel funds are required to have a corpus of at least Rs10 crore and minimum investment by an investor should be Rs25 lakh.
SEBI said, “The manager or sponsor shall have a continuing interest in the angel fund of not less than 2.5% of the corpus or Rs50 lakh, whichever is lesser, and such interest shall not be through the waiver of management fees”.
The regulator also stipulated that the fund must not have any family connection with the investee company and that no angel fund scheme have more than 49 investors.
In his budget speech, finance minister P Chidambaram had announced that SEBI would frame guidelines for angel investor pools by which they can be registered under AIF venture capital funds (VCF).
Under SEBI guidelines, AIFs already have sub-categories such as Venture Capital Funds, Social Funds and SME Funds.
Angel fund is likely to be a separate sub-category.
Regarding raising of funds by an individual investor, the person need to have an experience of 10 years and should possess assets of at least Rs2 crore.
In case an investor is a corporate entity, it need to either have a net worth of Rs10 crore or registered as AIF/ VCF with SEBI.
Here are the salient features of angel fund norms...

a. Angel Funds have been included in the definition of 'Venture Capital Funds' and a separate Chapter has been inserted specific to such funds. Angel funds shall raise funds only from angel investors. 
b. In view of the high-risk investments of such funds, certain conditions have been imposed on investors. For instance, individual angel investors shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with 10 years’ experience. They shall also be required to have net tangible assets of at least Rs2 crore. Corporate angel investors shall be required to have Rs10 crore net worth or be a registered AIF/VCF.
c. Angel Funds shall have a corpus of at least Rs10 crore (as against Rs20 crore for other AIFs) and minimum investment by an investor shall be Rs25 lakhs (may be accepted over a period of maximum three years) as against Rs1 crore for other AIFs. Further, the continuing interest by sponsor/manager in the Angel Fund shall be not less than 2.5% of the corpus or Rs. 50 lakhs, whichever is lesser.
d. For ensuring investments are genuine angel investments, angel funds shall invest only in venture capital undertakings which are not more than three years old, have a turnover not exceeding Rs25 crore, are not promoted, sponsored or related to an Industrial Group whose group turnover is in excess of Rs300 crore, and have no family connection with the investors proposing to invest in the company. 
e. Further, investment in an investee company by an angel fund shall be not less than Rs50 lakhs and more than Rs5 crore and shall be required to be held for a period of at least three years. 


Sensex, Nifty possibly headed lower: Monday closing report

A close below 5810 will be the first sign of correction for Nifty

On Friday (13th September), we had suggested that the Nifty was losing momentum and a close below 5805 would signal that a decline has started. Today, Nifty sold off sharply from the high it hit today morning and went below 5800 but bounced back and closed a tad lower than Friday. A close below 5810 tomorrow will be the first sign that a decline is about to begin.

The domestic indices opened on a positive note on the back of Larry Summers withdrawing his nomination to lead the US Federal Reserve (US Fed). The strong opening all over Asia apart from India, was used by market players to sell. The selling was compounded when latest inflation turned out to be higher than expected.

The BSE 30-share Sensex opened at 19,977 while the Nifty opened at 5,930. Soon they hit their respective intra-day highs of 20,086 and 5,957, highest since 25 July 2013. The indices were pulled into the negative, post the announcement of inflation data. The indices hit the low of 19,596 and 5,798 in early afternoon. The benchmark tried recovering from the low. While Sensex barley managed to close in the positive, the Nifty ended marginally lower. The Sensex closed at 19,742 (up 10 points or 0.05%) while the Nifty closed at 5,841 (down 10 points or 0.17%). The National Stock Exchange (NSE) recorded a volume of 66.10 crore shares.

The top five gainers among the other indices on the NSE were Bank Nifty (1.85%); Finance (1.29%); Consumption (0.49%); PSE (0.46%) and Auto (0.45%). The only five losers were Pharma (2.48%); Realty (2.33%); MNC (1.92%); IT (1.90%) and Metal (1.20%).

Of the 50 stocks on the Nifty, 18 ended in the green. The top five gainers were BPCL (3.88%); IndusInd Bank (3.75%); Maruti (3.50%); I C I C I Bank (2.98%) and Bharti Airtel (2.87%). The top five losers were Ranbaxy (30.03%); BHEL (5.11%); HCL Technologies (4.95%); UltraTech Cement (4.12%) and Sesa Goa (3.94%).

The annual rate of inflation, based on the monthly wholesale price index (WPI), accelerated to 6.1% in August 2013, from 5.79% in July 2013, according to data released by the government today. A surge in primary food articles inflation to 18.2% in August 2013 from 11.9% in July 13 mainly contributed to increase in inflation during August 2013. Meanwhile, the government revised the rate of WPI inflation for June 2013 to 5.16%, from the 4.86% reported earlier.

Build up inflation rate in the financial year so far was found to be 3.91% compared to a build up rate of 4.35% in the corresponding period of the previous year.

The market now awaits the US Fed move on tapering of the stimulus at the meeting to be held on 17 September and 18 September 2013 and Reserve Bank of India's mid-quarter monetary policy review on 20 September 2013.

HSBC downgraded Indian shares to "underweight" from "neutral", citing the recent rally and downside risks to growth. The bank says that after the recent bounce, India looks relatively expensive and is most exposed to growth adjustments. HSBC adds that it expects GDP forecasts to decline and earnings growth forecasts to follow.

US indices closed in the positive on Friday in spite of the average retail sales report and a disappointing read on consumer sentiment. The consumer sentiment reading in September issued by Thomson Reuters and the University of Michigan was 76.8, down from the 82.1 reading in August.

The US and Russia announced a deal on Saturday, 14 September 2013, for Syria to destroy its chemical-weapons stockpile by the middle of 2014. The agreement halted preparation for a possible US attack on Syrian government targets in retaliation for the apparent use of chemical agents on civilians last month.

Except for Shanghai Composite (down 0.22%) and KLSE Composite (down 0.09%) all the Asian indices closed in the positive. Jakarta Composite, top gainer, up 3.35%.

European indices were trading in the positive and the US Future was trading a 1% higher.


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