Regulatory credibility critical for investors

The latest allegations by Hindenburg Research against Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch underlines just how vitriolic the discourse, even on serious issues, has become. As the United States-based short seller, the Buch family, and SEBI trade statements and counter-statements, an important reality is being ignored: for economic powerhouses like India, the credibility of regulatory bodies, and the people who govern them, is paramount.

Hindenburg alleged on Saturday that SEBI’s unwillingness to act against the Adani group may be because Madhabi and her husband Dhaval Buch had stakes in offshore funds linked to the conglomerate. In response, the Buchs clarified that they had invested in the funds promoted by IIFL Wealth Management, in their capacity as Singapore-based private citizens, two years before Madhabi Buch joined SEBI as a whole-time member in 2017. This investment was done on the advice of Anil Ahuja, who has served as a director of Adani Enterprises in the past.

The Buchs, and SEBI in a separate statement, said that under the guidelines of the capital markets regulator, the chairperson made disclosures about her investments from time to time. They were on the recusal list maintained by SEBI, which ensured that Buch, or any senior functionary for that matter, could avoid a direct conflict of interest. This recusal list included alternative investment management company Blackstone, with which Dhaval Buch is associated.

Hindenburg also alleged that the SEBI chief has been pushing Real Estate Investment Trusts (REITs) because of Blackstone. On Monday, this was slammed by industry bodies representing REITs and other investments—they came out in support of the embattled SEBI chief. One should give the benefit of the doubt here to Madhabi Buch and SEBI, and consider that she has been transparent about her investments, and the regulator has mechanisms in place to avoid conflict of interest. More importantly, the Supreme Court of India has so far found no reason to disbelieve SEBI’s submissions on the allegations made by Hindenburg against the Adani group earlier. 

If anything, the way Hindenburg used social media, by first teasing a post on X, showed that it wanted to create a raging, controversial debate, more than anything else. The short seller, perhaps, felt its collective ego had been bruised after SEBI sent it a show-cause notice earlier this year. Even then, narrative is everything, and this is a strong one for the Opposition and critics of the government. While the finance ministry has maintained a studied silence, it would be prudent for the government and SEBI to say that they will conduct an independent inquiry. India is one of the world’s hottest investment destinations, and global banks, funds, and billionaires place massive importance on the strength of a country’s regulatory framework before they decide where to put their money.