Sebi issues notices to 20 companies

The Indian stock market regulator, Securities and Exchange Board of India (Sebi) has in the past two weeks issued notices to 20 large companies that have not complied with corporate governance regulations.

"We want to make examples of big companies," Sebi Chairman M Damodaran said at a Merrill Lynch & Co conference in New York. "We believe that those of you who invest in our markets need to know that the companies that you are invested in are managing your money well, putting it to stated good uses rather than unstated not-so-good uses. We want that message to get across." The regulator's move comes as overseas investors have pumped a record amount of cash into India's stock market, driving it to an all-time high.

Sebi wants to send a signal that it's in control of the markets and won't tolerate any misconduct that will interrupt their smooth running, said Deven Choksey, chief executive at K R Choksey Shares & Securities.

"Sebi is trying to be proactive, they do not want any untoward incident happening in the markets," Choksey said in a phone interview last week. "Damodaran is putting the point across to companies that Sebi can take punitive action."

Net equity purchases by overseas investors this year total $11.6 billion as of September 26, compared with the previous high of $10.7 billion set in 2005.

The regulator chose to push for better compliance by pursuing and sending notices to the "biggest and perhaps not the best" companies, rather than start a drive across thousands listed on the exchanges, the Sebi Chairman said yesterday.

He declined to name the companies, telling investors in the US that they would soon get the information through disclosures from the companies that got the notices for not complying with the mandated corporate governance framework. He also didn't elaborate on the infractions.

The crackdown was prompted by criticism that while the agency "had barked long enough" about the regulations, put in place a long time ago, it was showing an "unwillingness to bite", Damodaran said.

The regulator's chairman also highlighted other recent steps, such as an improved set of rules for Indian depositary receipts to ease their issuance. "We would like to see IDRs become a fact of life in the not-too-distant future," Damodaran said at the conference, which was on "Investing in India's Most Promising Sectors".

The watchdog is also rewriting the entire body of regulations drawn up in the past 15 years for the securities market, with the goal of eliminating some. "If things work out, we might be the first regulator to put in sunset clauses," so that regulations don't outlive their purpose, Damodaran said.