Sebi’s ‘shell’ move hits Sensex, Nifty hard

Mumbai: The equity markets witnessed broad based selling on Tuesday with the Nifty and Sensex slipping below their critical support levels after the Securities and Exchange Board of India (Sebi) asked stock exchanges to place 331 companies suspected to be ‘shell companies’ under the Stage VI of the Graded Surveillance Measure (GSM) with immediate effect. 

Under the stage VI of GSM framework, trading in these identified securities shall be permitted only once a month under trade-to-trade category. While none of the companies mentioned in the circular belongs to large-cap category, experts said the latest order from the capital market regulator impacted the overall sentiment as it has raised concerns regarding the misuse of stock exchange platform for dubious purpose. 

The regulator has also asked the exchanges to appoint an independent auditor to conduct the audit of such listed firms and if necessary even conduct a forensic audit to verify the business credentials of such firms. 

The Nifty slumped 136.8 points or 1.35 per cent from its intra-day high of 10,083.80 and hit a low of 9,947 before ending the session below its crucial support of 10K level mark. 

The index closed the day at 9,978.55, down 78.85 points or 0.78 per cent from its Monday’s close. Similarly, the Sensex too witnessed a steep fall in the intra-day trade before ending the trading session at 32,014.19 losing 259.48 points or 0.80 per cent.  

Responding to SEBI’s order, J Kumar Infraprojects, which has a work order size of Rs 9,334.81 crore as on March 31, 2017 clarified that it is not a shell company and the suspicion of the regulator is uncalled for. 

“Our company’s compliance track record both with the exchanges and registrar of companies has been impeccable. We are seeking legal advise in the matter and would also approach SEBI requesting it to recall its order against the company,” it said.

Stating that the order has taken both the industry and investors by surprise, Rajesh Narain Gupta, managing partner, SNG & Partners said that even if some of these companies are later found to be genuine, the latest SEBI order is a severe blow on their perception and valuation. “Devil lies in details so we need to do a deep dive on this order. It is not clear whether show cause or appropriate notice was given to these companies to justify whether these are actually shell companies or not. Some of the names appear to be good names. While protection of consumer interest is paramount, balance needs to be explored between protection and logical interference,” he said. 

Meanwhile, the investor wealth plunged by Rs 1.43 lakh crore due to the sell-off in the stock markets.