The Hindu Editorial Vocabulary– Jan 30, 2022; Day 397

Warning bells: On the Adani saga

India’s regulatory framework must infuse confidence in investors and savers

The latest stock market gyrations (The act of rotating in a circle or spiral) induced (Cause to arise) in large measure by the stock rout in leading infrastructure and commodities intensive conglomerate (A group of diverse companies under common ownership and run as a single organization), the Adani group, over the last two trading sessions last week has cast (Put or send forth) the spotlight back on India’s regulatory environment. The highly leveraged (Provide with Strategic advantage) group’s market troubles, in the wake of a U.S.-based short seller’s report alleging (Make an accusation or assertion without any proof) ‘stock manipulation and questionable accounting practices’, dragged down banking shares led by the State Bank of India and even the state-owned Life Insurance Corporation of India (LIC) appreciably on Friday, triggering investor concern about broader financial sector stability. And while a media report citing sources said the Securities and Exchange Board of India (SEBI) had stepped up scrutiny (The act of examining something closely (as for mistakes)) of the conglomerate’s transactions, there has been no official word from the markets regulator. The conglomerate itself has rubbished the short seller’s allegations as being ‘baseless and discredited and born of mala fide (In bad faith; dishonestly) intent to hurt the group’s reputation’, and is weighing legal action. Notwithstanding how the conglomerate might move to address the concerns raised in the short seller’s report as well as those of domestic investors who appear to have turned chary (Characterized by great caution and wariness) of the group’s stocks, India’s regulators including SEBI and the Reserve Bank of India have an opportunity, nay an obligation, to clear the air by allaying (Lessen the intensity of or calm) fears of any broader systemic contagion.

Even granting that the group’s stocks do not have a significant presence or weight on the major benchmark stock indices, and private equity research reports have sought to downplay (Represent as less significant or important) concerns about the banking sector’s overall exposure to the group, there can be little argument that the major state-owned banks and the LIC are key pillars of the country’s financial system. Given the extent of public trust reposed (Put or confide something in a person or thing) in these companies in the form of savers’ deposits and life insurance policies as well as taxpayer resources that have been invested to keep the PSU lenders adequately capitalised, financial system regulators would be serving the larger public interest by pre-emptively communicating messages of reassurance. Regulators could also enhance credibility in India as an investment destination by tightening not just the listing requirements but more crucially the enforcement actions in case of egregious (Conspicuously and outrageously bad or reprehensible) breaches of the laws. The global debate over the credibility of credit ratings that has surfaced from time to time, whether in the wake of (following (someone or something), especially as a consequence) the Asian financial crisis of the late 1990s, or the global financial crisis of 2007-08, is also a concern that India’s regulators need to re-engage with. At a time when India holds the G-20 presidency, authorities must ensure the regulatory framework is seen in nothing less than the best light.

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