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At the end of last week, there was a “panic reaction” in India as regulators suspended 24 brokers, A. Balasubramaniam, chief investment officer of Birla SunLife, tells BusinessWeek. However, the regulator’s move was “a long-term positive and should help clean up the market”, he says.
The scandal broke after tax investigators took a look into the affairs of the businessman Rupalben Panchal and Sugandh Investments. They had declared income of just £1.6m (130m rupees), rather than the £12.2m they had actually made, says Dean Nelson in The Sunday Times.
According to the Securities and Exchange Board of India (SEBI), “financiers had colluded to corner the market in lucrative flotations by filing thousands of applications in false names”, says Nelson. The Sensex fell 500 points on the news.
However, the Securities Board claimed the crack-down was good news. “We want to send a signal that the market here is safe,” said Ravi Chandra, SEBI’s general manager.
Analysts agreed. They said that “the fundamentals of the Indian economy were strong, so the decline in the market would be short term”, said BusinessWeek.
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