The Hindu Business Line : SEBI does its bit

SEBI’s resort to cosmetic changes in the primary market regulations is attributable to the extraordinary situation prevailing in the economy and the capital market.

The Securities and Exchange Board of India’s (SEBI) decision to permit companies to raise capital on the basis of information filed with it as long as a year ago, against a mere three months as is the norm now, may seem somewhat radical given its over-arching objective of investor protection. The cornerstone of its regulatory philosophy, one that it has been at pains to emphasise all along, is that the agency is not into micro-managing the activities of capital marke t players. It would rather have investors take informed decisions on the basis of exhaustive disclosures by corporates seeking to raise money from them. At the best of times however, business fundamentals are subject to rapid change rendering any investment decision taken on the basis of historical data risky. The recent credit crunch and the consequent slowdown in the economy which has acquired global proportions has only heightened such a risk.

On a closer reflection, however, it is evident that SEBI’s latest decision does not really represent any fundamental shift in the regulatory architecture for the capital market. For, even as SEBI permitted public offer documents an extended life, it has simultaneously sought to negate any possible adverse effect with the caveat that any material change to the information already disclosed must be communicated to it. In other words, SEBI has reserved for itself the right to compel companies to disclose such new information or amend what is already disclosed at any time leading up to the actual mobilisation of funds from investors.

That SEBI has been forced to resort to cosmetic changes in the primary market regulations can be attributed to the extraordinary situation prevailing in the macro economy in general and the capital market in particular. The Government has been forced to peg down the overall growth in the economy in the current fiscal by a couple of percentage points. There are worrisome trends on the export front as well. The primary market has virtually collapsed with the number of primary issues of capital down next to nothing in the last three months. In such a backdrop, there is all-round expectation of some policy initiatives by the Government and regulatory agencies such as the RBI and SEBI to lift public confidence in the economy, and the capital market regulator has obliged. The global economic scenario continues to be clouded with uncertainty. Unless there is greater clarity on the extent and duration of the recession in the developed economies of the West, foreign portfolio flows are unlikely to register the kind of momentum witnessed this time last year. Equally, domestic investor sentiment should stay subdued.

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