REGULATORY BODIES AND REGULATION

 Eventhough the timing of Hindenburg research report released after two years of investigation may be doubted but their evidence suggests that Adani corporate group has engaged in brazen stock manipulation and accounting fraud and stock manipulation at the conglomerate, that ranges from logistics to airports and electricity. The report states that the company had 38 shell companies in Mauritius, Cyprus, Caribbean Islands UAE and Singapore through which money was being round tripped into both listed and unlisted companies of the group. Generally companies pool capital from a large investor base both in domestic and international capital and the regulators are required to govern them effectively.Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.It plays a crucial role in ensuring that business are run ethically and in the best interests of their stake holders. Investment is ultimately an act of faith in the ability of the company's management to act in the best interest of all with responsibilities and duties with underlying three basic principles of corporate governance namely 1.Integrity and fairness.2.Transparency and disclosures and 3.Accountability and Responsibility. Broadly the test of corporate governance should cover whether the funds of the company have been utilised to pursue the main objects as enshrined in the Memorandum? Funds acquired from financial institutions and capital market have been utilised for the purpose for which they were intended. Whether the company has core competence to manage effectively it's diversification? Whether  there has been proper diversion of funds by way of loans and advances or investment.Corporate Governance Framework in India based on the Company's Act 1956 provided checks and balances over the powers of the Board of Directors. The Companies Act, 2013, provides a formal structure for corporate governance by enhancing disclosures, reporting and transparency through increased and new compliance norms.Infact the Ministry of Corporate Affairs (MCA) and Securities and Exchange Board of India (SEBI) is responsible for corporate governance initiatives in India.SEBI monitors and regulates corporate governance of listed companies in india through Clause 49. It may be recalled here that Reserve Bank of India's Financial Stability Report released in December 29,2022 indicated that buoyant demand for bank credit and investment are benefitting from improved asset quality, return to profitability and strong capital and liquidity buffers of scheduled commercial banks(SCBs).As a result Gross Non performing assets (GNPA) ratio of SCBs fell to a 7 year low of 5.0 % and Net Non performing assets (NNPA) have dropped ten year low of 1.3% in September 2022.While macro stress test for credit risk of SCBs revealed adequacy under baseline, medium and severe stress scenarios.Similarly the consolidated solvency ratio of both life and non life insurance companies remained above the prescribed minimum level.

Eventhough the group denied the allegations of manipulation and accounting fraud the combined valuations of its seven listed companies have almost shrunk half from 6% to  3 in two major stock exchanges in India. Morgan Stanley Capital International (MSCI) decision to review the free float tag of Adani stocks led to cut free float of 4 firms.MSCI as a research and investment firm provides stock indexes ,portfolio risks and performance analytics, and governance tools to institutional investors and hedge funds. After the five member small firm- Hindenburg report was released public policy makers and financial experts made different observations ranging from the need for market trust and ,transparency to good governance practices. French energy giant total energy decided put a hold on  the  hydrogen partnership announced by the two groups last year. The initial probe made by SEBI and Government agencies indicated that a bear cartel may have triggered the $100 billion rout in the share prices of Adani Group through the use of highly potent Structured Product Derivatives (SPD) tailor made by foreign banks for high networth traders and funds. SPDs like participatory notes keep the identity of the ultimate Beneficiary hidden. Even though Indian law doesn't permit short selling of domestic stocks outside India, probe reveals that huge trading practice in Adani stocks outside the country that had a domino effect on domestic market with high volatility. It has been observed that but for these derivative instrument the possibility for such heavy selling in Adani shares in India to wipe out $100 billion is remote as more than 90% of the float was held by promoters or entities close to them and domestic institutions. The sharp fall of share prices prompted the Supreme Court to protect investors from such sudden market voltatility and the bench directed SEBI to submit a note detailing legal and factual aspects of regulatory framework for securities market.It may be noted here that so far 3 Adani firms pledged shares for lenders to the conglomerate's flagship Adani Enterprises Limited (AEL) which pulled ₹ 20000 crores share sale during recent market rout. According to State Bank of India chairman SBI's exposure to the group is 0.9% of its loan book. 

 After the introduction of economic reforms in the country major stock price manipulation was  committed by Harshad Mehta in 1991-92.In 2009 Satyam Scandal took place in which company's founder and his brother were found guilty of criminal breach of trust. Recently SEBI unearthed irregularities in National Stock Exchange leading to the arrest former Chief Executive Officer. Other malpractices committed include ICICI Bank IL&FS ,Yes Bank and even Unicorns such as Bharat Pe..Generally Indian companies have concentration of power in the hands of individuals. Management and ownership are often inextricably linked in many businesses resulting in conflict of interest and lack of transparency. This impinge both shareholders and stakeholders ability to hold companies accountable and make informed decisions. Some analysts observed that even where individuals are caught for scams or financial malpractices  the legal and regulatory system lagged very much and needs to be much faster and more effective.It is obvious that India's weak corporate governance framework not only adversely affect the  entire economy but also investment climate in the country in some way or other. According to regulatory expert  and former Chairman of SEBI  M.Damodaran "Corporations are more likely to be corporate autocracies in practice. It becomes terrifying when the holding firm is controlled by a family and dangerous when the family holding company has political connections.Although in theory corporations are shareholder democracies in practice they are more likely to be corporate autocracies." It has been observed that our laws on corporate governance are less comprehensive compared to that of developed countries including USA.Even when individuals are caught for scams or malpractices in India the legal and regulatory system consume lot of time. In fact proximity to political higher ups and policy making have led to the growth and development of business conglomerates in many countries across the world. But utilising such clouts to manipulate and create artificial increase in stock prices is bound to fall. Regulatory bodies should be very vigilant about  undue volatility in stock market particularly on upward movements.