Market Mix - SEBI Chief Under Fire Again

September 03, 2024 | Read Online

Good morning. There seems to be no end to controversies for the Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch. The latest salvo against her by the Congress party, and a clarification from the ICICI Bank, may not be the last one. But keeping silent could make things worse for her. Read on to know more.

In other news, listed stockbroking companies aren’t seeing a good time in the stock markets. Meanwhile, big bids are being made for Coca-Cola’s bottling plant in India.

THE TAKE

Time Is Running Out For Madhabi Puri Buch

SEBI chairperson Madhabi Puri Buch is back in the news cycle again. This time, the Congress party has alleged that she was earning a fairly substantial income in the form of salary from ICICI Bank despite being a full-time board member of the SEBI. Buch parted ways with ICICI Bank almost a decade ago.

Responding to the allegations, ICICI Bank clarified that they had not paid a salary or granted ESOPs to Buch after her retirement other than her retiral benefits since she superannuated in October 2013. The statement said that Buch received compensation in the form of salary, retiral benefits, bonus and ESOPs, in line with applicable policies. Under the bank’s rules, the ESOPs vest over the next few years from the date of allotment.

According to the rules, employees, including retired ones, had the choice to exercise their ESOPs anytime within 10 years from the date of vesting. While people are going to nitpick further on this, it is logical that there had to be a simpler explanation for the allegations made.

The nitpicking will link to whether ICICI Bank was given lenient treatment in its merger with ICICI Securities, a subsidiary of which ICICI Bank owns around 75%. Specifically, ICICI Bank did not have to go through a price discovery process that made ICICI Securities shareholders feel shortchanged. Quantum Mutual Fund’s Ajit Dayal, a vocal critic of the deal, had spoken about this matter earlier on The Core Report.

The Congress party likely knew about Buch’s income and the likelihood of it going back to her old stint. They used this as a good opportunity to bring attention back to the larger issue of the cases against Adani and the Hindenburg report which had died down.

It does appear that events, including the political back and forth that has ensued, are running ahead and faster than what a former ICICI bank executive, even if somewhat battle-hardened in recent years, can stomach having not been a politician. That unfortunately is the price to pay for occupying public office.

It is equally unfortunate that the SEBI chairperson has not issued a line-by-line public disclosure on her dealings with issues involving the Adani group, and on her income in the last decade. It is very likely that she has followed the law and recused herself from meetings where there could have been a perceived conflict. But that is conjecture.

Till Buch makes a clean public statement, she will continue to face repeated allegations, including the likes of what we saw on Monday. Some allegations can be cleared with a simple response, others may not. The only way out is to take the issue head-on and not run from it, even if there is a sense of assured protection in keeping silent.

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CO:RELATION

Discount Brokerages No More?

Share prices of listed stockbroking companies continue to lose ground despite an overall positive market trend. That follows the SEBI expressing concern over using interest income to offer zero brokerage or a discounted rate on their primary source of income. Stockbrokers have enjoyed an implicit annual interest income of Rs 12 thousand crore by holding Rs 2 lakh crore on their books as float, according to SEBI board member Ananth Narayan G. That is the money you deposit upfront to your broker before trading. SEBI rightly sees it as a systemic risk since brokerages are non-banking finance companies and do not have the capital adequacy rules to manage money like banks. Sebi wants brokers to earn money through brokerage and not just interest income. If brokers reduce the money they hold in their accounts, they will see a decline in the interest income. At the same time, you will eventually have to pay more for your transactions.

CORE NUMBER

57.5

This is where India's HSBC Purchasing Managers' Index (PMI) stood in August, a three-month low, down from July’s 58.1, due to softer demand. According to the PMI report, despite continued expansion, the pace eased as new business and production saw a 'substantial yet softer' increase. New orders and output mirrored this trend, with fierce competition cited as a factor. Although new business rose sharply, competitive pressures dampened growth. Export orders grew at their weakest pace since early 2024. Input costs rose modestly, prompting firms to rebuild safety stocks with additional purchases.

FROM THE PERIPHERY

—🥤 Dabur’s Burman family and Jubilant Group promoters the Bhartias have both submitted bids for a 40% stake in Hindustan Coca-Cola Beverages (HCCB) for Rs 10,800-12,000 crore, The Economic Times reported. HCCB is the wholly owned bottling subsidiary of Coca-Cola India. In June it was reported that the parent company was seeking a stake sale, and has plans to take the arm public. Coca-Cola will decide whether the deal will have one or two co-investors.

—💡 At 144.2 billion units, India’s power consumption fell 4.9% year-on-year in August. It also fell 4.2% compared to July, thanks to lower temperatures across the country last month. August saw moderate to heavy rainfall in several states in the country, which also led to a sharp drop in power prices on the Indian Energy Exchange. Earlier this year, electricity demand soared to record highs during a scorching summer, with the country relying mainly on coal-based power for electricity.

—🏦 RBI Deputy Governor, Swaminathan J defended the central bank's recent strict actions against certain financial firms, emphasising that these measures were taken to protect customer interests and ensure financial system stability. He said that penalties are only applied to severe violations, after careful review. Swaminathan also addressed concerns that these actions could stifle innovation, arguing that while businesses may pursue higher risks for profit, the RBI's role is to ensure safety and discipline without stopping businesses from operating.

—🔩 India is set to receive its first Made-in-India semiconductor chip by mid-2025. On Tuesday, the Union Cabinet approved Kaynes Semicon Pvt. Ltd's plan to set up a semiconductor unit in Sanand, Gujarat. The project, valued at approximately Rs 3,300 crore, aligns with India's Semiconductor Mission, initiated in December 2021 with a Rs 76,000 crore budget. The facility will have the capacity to produce over 6.3 million chips daily, serving industries such as automotive, telecom and consumer electronics. This development is part of a broader Rs 1.5 lakh crore investment in the sector.