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: Among the changes introduced by the Securities & Exchange Board of India on Monday night, the most significant is the plan to mandate half-yearly disclosure of balance sheets by the Indian corporate sector. To understand the implications of the development, this is a departure from the current practice of listed companies, which only reveal their earnings every quarter. The regulator has now made it compulsory for all of them to disclose their cash flows every six months, too. This means investors will not have to wait for a full financial year to get a health check on the companies. As shareholders of erstwhile Satyam realised, the earnings figures at times can be manipulated, but the cash flow is a more difficult animal to tame. As Sebi has rightly pointed out, most significant markets insist on such disclosure, which means the best managed Indian companies listed there do provide such details every half year. So, extending a good practice to the rest of the listed companies is what virtuous regulation is all about. Read with another set of rules that now mandate companies to release their audited results within 45 days of the end of the quarter, instead of the current divergent practices, these are just what were needed. As we are in any case quite close to the International Financial Regulation Standards that will begin from 2011 and include all these guidelines, the rule changes rung in by Sebi will only help listed companies make the switchover easier.
One expects the same sense of direction in the case of rule changes introduced by Sebi for companies to raise funds through the equity route approved in the same board meeting. There is little to quibble about the changes, like allowing the pure auction method in the book-building route for institutional investors, in any issue. The current rules were biased towards the investment banker for an issue, who could set a band, only within which other companies could bid. The new system is more democratic and is willing to run the risk of letting a few institutions corner the shares. But the same logic should also apply to retail investors. The quota system has run for too long in the primary issues market, without any tangible result. It is time Sebi set a long-term goalpost in accordance with the best practices abroad and set about implementing them in this respect.
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