Hands off: OnMobile is Sebi's turf, not government's

The ministry of corporate affairs is seeking a report from the Registrar of Companies (ROC) on the ongoing controversy in a Rs 425 crores market capitalisation company, OnMobile Global. It makes one wonder if India does not have a regulatory system to take care of such affairs.

OnMobile Global has been in the news recently on issues of corporate governance but the market had guessed something was amiss with the company much earlier and had brought down the stock price from Rs 325 levels in July 2009 to Rs 60 levels in April 2012.

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Why should the government get into company-specific issues in cases such as OnMobile Global when there are enough number of agencies overseeing such entities. Sebi as the capital market regulator should be the entity pursuing such cases as it affects investor money. If it’s a case of fraud it goes into realm of other entities, including the revenue department.

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The government also raised questions from the market when it voiced its support for the introduction of entry loads in mutual funds. It is Sebi’s job whether to allow mutual funds to impose entry loads on not.

More importantly, investors will take a call on investing in companies like OnMobile Global or investing in mutual funds even if the government imposes its presence in the affairs of the capital markets.

The government sends out wrong signals when it overrides its own agencies to look into matters affecting markets and investors. The first signal it sends out is that the wrongdoers can always go to the government when they are caught by the government’s agencies. If Sebi doles out harsh punishment to a company for mismanagement, the company can always go to the government to appeal. Investors in such cases will lose whatever faith they have in the system.

The second signal it sends out is that it does not have faith in its own agencies to monitor and regulate capital markets. If the government does not have faith in its own agencies, what faith will investors have in these agencies.

The third signal the government sends out when imposing its presence in the affairs of capital markets is that it believes that issues such as OnMobile Global should not happen in India and it sends out wrong signals to foreign investors, whom it wants desperately to bring in money into the country.

Indian has seen the worst corruption scandal in the form of 2G scam under the leadership of the present government and the OnMobile Global corporate governance issue is just one of the many. No investor at present believes that fraud will not happen in capital markets and will not change his or her perception even if government involves itself in the affairs of the market.

The government has many things on its plate now. The country’s macroeconomic fundamentals have taken a beating over the last four years on the back of policy paralysis. Inflation, fiscal deficit and current account deficit are pressing problems that require to be addressed. The poor macroeconomic fundamentals coupled with the image of a non-reformist government has taken down the Indian rupee to all-time lows against the US dollar. The government has to go about setting things right at the macro level and leave the management of capital markets to its agencies.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com, a web site for investors.