Sebi proposes broadening Credit Rating Agencies' mandate amid regulatory gaps
Currently, Sebi's rules restrict CRAs to rating securities that are listed or proposed to be listed on recognized stock exchanges. However, CRAs are not barred from rating other financial products if permitted by guidelines from other financial sector regulators (FSRs) like the Reserve Bank of India (RBI) or the Insurance Regulatory and Development Authority (IRDA).
The industry pointed out a regulatory gap: financial products under other FSRs lack specific rating guidelines. This has led to confusion about whether CRAs can rate such products, such as unlisted securities.
Sebi's new consultation paper seeks to address this ambiguity, responding to feedback from industry stakeholders who believe that allowing CRAs to rate a wider range of products would bring synergies and fill an important gap in the market.
Sebi is considering allowing CRAs to rate financial instruments under the jurisdiction of other FSRs, even if those regulators have not issued explicit rating guidelines. However, this expanded role comes with strict conditions designed to protect investors and ensure transparency.
CRAs must ensure that the existing non-Sebi-regulated activities are transferred to a separate business unit (SBU) within six months of the new rules coming into effect. Each SBU must have its own grievance redressal mechanism, separate from that for Sebi-regulated activities.
SBUs must maintain their own records and employ staff distinct from those handling Sebi-regulated work. Staff movement across the Chinese Wall is allowed only with proper board-approved procedures.
The minimum net worth required for a CRA under Sebi regulations must be protected from any risks arising out of non-Sebi regulated activities. CRAs must clearly disclose all non-Sebi regulated activities on their website and in related rating reports, along with a disclaimer that Sebi's investor protection mechanisms do not apply.
Market participants, investors and other stakeholders have until 30 July to share their views.
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Indian Express
21 minutes ago
- Indian Express
From a 90% crash to a 1,000% rally: Can PC Jeweller regain its shine?
In the jewellery business, trust is everything. Ask PC Jeweller (PCJ), which saw its fortunes plummet in 2018 after losing investor confidence and has spent the last five years rebuilding itself. Legal battles, irrecoverable payables, and short-term debt pushed the company into a deep crisis. But today, PCJ is attempting a comeback, step by step, trying to restore the trust. On July 7, 2025, PCJ's promoters infused Rs 500 crore into the company by subscribing to fully convertible warrants at Rs 18 each, a premium to the June 30 market price of Rs 12.3. This sent the stock soaring 52% in the first week of July to Rs 18.7. The company will use these funds to repay bank debt, with an aim to become debt-free by the end of FY26. But to understand the significance of this move, it's important to understand where PCJ went wrong and how far it still has to go. PC Jeweller's Stock Price Momentum (2014-2020) Between FY14 and FY18, PC Jeweller grew its revenue by 80% to Rs 9,610 crore, placing it alongside Kalyan Jewellers and Joyalukkas in terms of market share. But everything began to go south after SEBI pulled up PCJ for insider trading in January 2018. The stock tanked 90% within 9 months. The promoters moved the Securities Appellate Tribunal (SAT) and then to the Supreme Court. Though the apex court overturned SEBI and SAT's ruling in April 2022, four years of legal proceedings had done much damage. Legal troubles and weakened consumer trust pulled revenue down by 83%. The company reported a net loss of Rs 391 crore in FY22, with sales falling to Rs 1,605 crore, which were not enough to cover its fixed costs. PC Jeweller's Sales and Profits FY14-FY22 5,325 6,361 7,301 8,464 9,610 8,672 5,206 2,825 1,605 378 1 -391 Source: The gems and jewellery sector operates like any other retail business, with pan-India stores. What sets them apart is the cost of gold, the primary raw material. India imports gold to meet jewellery demand, and the government imposes a customs duty on these imports. Jewellers also have a high working capital demand as gold is slow-moving, often taking 6–12 months to convert into sales. When sales declined because of the pandemic and the legal issues, PCJ was left with unsold inventory worth Rs 5,667 crore. PC Jeweller's Inventory from FY18-FY22 Inventory (Rs Crores) 5,258 5,012 5,944 5,667 Inventory Days 1,465 Source: Moreover, the pandemic resulted in export clients defaulting on trade receivables. Thus, PCJ had to borrow Rs 727 crore from banks to meet its trade payables, which increased its borrowings to Rs 3,283 crore in FY22 (from Rs 2,294 crore in FY21), and reduced its cash reserve to Rs 60 crore. From a net-cash company in FY18, PCJ became a net debt company by FY22. Within six months, it defaulted on loans worth Rs 3,466 crore in Q2FY23 ended September 2022. At this point, short-term borrowings were more than its reserves, and cash was running dry. PC Jeweller's Cash and Debt from FY18-FY22 Mar-20 Mar-21 Mar-22 Short-Term Borrowings 1,025 2,091 2,282 2,294 3,283 Cash Equivalents 1,556 322 178 60 Source: The creditors lost trust in the jeweller. The State Bank of India (SBI) (Rs 1,060 crore outstanding loan), its largest lender, initiated insolvency proceedings on PCJ in January 2023. Its two prime properties in New Delhi came under the SBI's control, and its inventory at a few locations came under the court's custody, disrupting operations. In FY24, the company's sales fell 75.5% to Rs 604 crore. The 334% rally in 4 months (27 June-24 October 2022) after the Supreme Court ruling reversed after the bank loan default. PC Jeweller's Stock Price Momentum (2022-2025) In December 2023, despite reporting its lowest quarterly revenue of Rs 40 crore (down 95% year-over-year) and a net loss of Rs 198 crore, PCJ's stock surged 100%. Behind the rally was PCJ's negotiations with banks to avoid bankruptcy. The jeweller even offered to reduce payment terms to 3 years from 5 years to get the lenders to settle, instilling confidence in investors. In July 2024, the company reached a One-Time Settlement (OTS) with 12 out of 14 banks. As part of the settlement, PCJ agreed to repay the loan in cash and equity, with structured cash payments over 2 years from the date of settlement (September 30, 2024). However, it expects to repay the debt by March 2026. So far, PCJ has paid Rs 487 crore in cash and converted debt worth Rs 1,510 crore to equity, giving banks a 9.07% stake in the company. As of March 30, 2025, it halved its debt to Rs 2,064 crore. The company will announce more such capital infusion as part of its plan to raise up to Rs 2,705 crore by issuing warrants on a preferential basis to promoters and investors. So far, the company has raised Rs 1,664 crore from share warrants. PCJ is strengthening its balance sheet by reducing debt. Simultaneously, it is reviving its business by using Rs 529 crore from the capital raised towards working capital. This helped the jeweller revive its FY25 sales. It reported a profit of Rs 578 crore by reducing its interest expense by Rs 454 crore to Rs 51 crore. PC Jeweller's Cash and Debt from FY23-FY25 2,245 2,064 Cash Equivalents Inventory 5,633 6,649 Source: PCJ is no longer in crisis mode. Over the last five years, it has avoided bankruptcy and returned to profits, which drove its share price up 1,068%. But challenges remain. PCJ's short-term borrowings have a Crisil rating of D (Default) 'issuer not cooperating' as on March 28. It received a show-cause notice from SEBI in February 2024 for alleged violation of the Listing Obligations and Disclosure Requirements (LODR) Regulations. Though it has settled the issue with SEBI by paying Rs 7.23 crore, it highlights that more work needs to be done around its corporate disclosures. PCJ also has to work toward reviving its business operations, where it is competing with giants like Tanishq and Kalyan Jewellers. Kalyan Jewellers has been expanding showroom count aggressively by moving from company-owned company-operated (COCO) to franchise-owned company-operated (FOCO) model. In the FOCO model, the franchise owners put their money into owning/leasing the store and store inventory. This model reduces the capital intensity of opening a new store, but also reduces the margin. PCJ, on the other hand, still operates on the COCO model, with only 4 franchises and 48 showrooms. The company's FY25 revenue is down 9% from FY23, when the business was not disrupted by bank default. PCJ is confident about FY26 growth. Its stock is trading at a price-to-earnings (P/E) ratio of 19x, way below Kalyan Jewellers' ratio of 85x and the industry median of 32x. Even the Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortisation (EV/EBITDA) ratio of 25.3x looks cheaper than Kalyan Jewellers' 39x. But PCJ's low valuation doesn't make it a value stock. It still carries high risk as the company still lacks consumer trust. It now has a shorter deadline to repay the Rs 2,064 crore debt. Until consumer and investor confidenc eis fully restored, risk remains high. Analysts have not yet initiated coverage on PCJ stock. That means investors must rely on their analysis of the company's performance. Being a distressed small-cap stock, its trading volumes are mostly concentrated around shareholder events, which increases volatility. However, it holds potential to grow substantially if the positive news keeps flowing in. Note: We have relied on data from throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
Mint
an hour ago
- Mint
Sebi seeks brokers' input on deepening markets after Jane Street crackdown
After a scathing interim order on US hedge fund Jane Street, capital markets regulator Securities and Exchange Board of India (Sebi) sought feedback from brokers last week on ways to deepen markets and promote products more suitable for retail investors who have lost fortunes trading weekly options, according to two brokers who requested anonymity. 'Sebi is not against derivatives trading, but does not want short-term frenzy to overcome retail investors' judgement," said one of the brokers. 'The regulator wanted to gauge how the index futures segment could be made more liquid, and certain tax-related issues were also discussed. These discussions were exploratory in nature, and we expressed our views." Jane Street allegedly made unlawful gains worth ₹4,844 crore over 21 days between August 2023 and May 2025, according to a Sebi interim order on 3 July, by taking outsized and sometimes contrary positions on index and stock futures and options to mislead market participants. The lifting of the ban is under consideration, with Jane Street having deposited the ₹4,844 crore in escrow as per Sebi's direction. According to the brokers, the discussions last week covered both cash market and the derivatives segment–which comprise futures and options on indices like Nifty and Bank Nifty, as well as stock futures and options–and the stock lending and borrowing (SLB) mechanism. Email sent to Sebi went unanswered. Derivatives street While retail/HNI and foreign institutional investors are the main players in index futures like Nifty and Bank Nifty, the turnover of these products lags far behind index options—especially after Jane Street was barred from accessing the market—due to differential tax treatment and the risk of unlimited losses if markets move against traders. Index options are dominated by retail and proprietary traders like Jane Street because they are cheaper and more liquid than futures. For example, the notional turnover of index options was 669 times that of index futures in June, rising to 1,062 times in just 14 days of the current month, with Jane Street's absence partly reducing the turnover. A futures contract facilitates the purchase or sale of an underlying stock or index at a fixed price for delivery on a future date. An options contract, on the other hand, gives a buyer the right to buy or sell an underlier at a fixed price for delivery on a future date. The option seller has an obligation to give or take delivery of an underlier. A senior broking official attributed the relative popularity of options over futures partly to differential tax treatment. Securities transaction tax (STT) on futures applies to total contract value, while for index options it is levied on the premium, which is a comparatively smaller amount. For instance, sale of a futures contract attracts STT of 0.02%, while options attract 0.1% on premium value. However, as the contract value of a Nifty futures contract is ₹18.78 lakh (75 shares at ₹25,033 per share), the STT payable is ₹375. On Nifty options, the premium of a 25,000 put was ₹122 per share, translating into a contract value of ₹9,150 (75×122), with an STT of just ₹9.15. 'The cheaper transaction cost is one of the reasons for making options more popular than futures. Since tax rates are decided by the finance ministry, only the government can enact relief at Sebi's request," he explained. The difference in tax treatment, combined with the risk of unlimited losses with futures in adverse market direction, tends to push retail more toward options than futures. For example, if a participant shorts a Nifty futures at 25,000 expecting it to fall to 24,800, but it rises to 25,200 instead, the loss would be ₹15,000 (200×75), versus a maximum of ₹9,150 for a buyer of a 25,000 strike Nifty put expiring Thursday. Equity futures also see more participation in the first of the three rolling months, a matter that Sebi wishes to address, per the brokers. Liquidity is thus highest only in the active month. For example, July Nifty contracts had 183,184 contracts open, versus 67,263 for August and just 6,057 for September, per data from NSE, which has a 99.8% share in equity futures. Another broker agreed and said that futures volumes had declined further with Jane Street's departure. He added that his firm had suggested 'refurbishing the SLB mechanism to facilitate easier participation and liquidity". SLB allows participants to borrow stocks from investors to exploit arbitrage opportunities (price differences across the cash, futures, or options segments) or to simply sell a stock if one has a bearish view. Indian rules do not allow selling a stock without holding it; selling via borrowed stock under the SLB mechanism is allowed. Stock is borrowed by arbitrageurs and small traders from retail and HNIs in exchange for a 125% margin and monthly interest of 0.5–1%. Once the tenure ends, the stock is repurchased in the market and returned to the lender, or the arrangement is rolled over. 'The SLB's steep margin payment is one reason for lack of traction; the others are the cumbersome process, which precludes direct digital transactions and easy rollovers or exits," said the other broker. 'Until Sebi restructures the mechanism, it won't really pick up; this is what we suggested." Unlike the online buying or selling of shares or derivatives, SLB transactions still require calling a broker. Arbitrage opportunities or shorting possibilities are typically communicated by the broker. Ashish Nanda, president and head of digital business at Kotak Securities, a major SLB player, who was not aware of last week's discussions, explained that SLBM is largely used by borrowers for naked shorting or when an arbitrage opportunity arises. 'Naked shorting isn't easy and is done mainly through the F&O segment," he said. 'Arbitrage opportunities are not always available, and not all stocks have a lending opportunity at all times. Unless liquidity improves, SLBM may not become a large segment."
Mint
an hour ago
- Mint
It's not just Jane Street. Here's why derivatives are actually slowing down this July
Derivative trading activity has noticeably slowed this month—a trend driven not just by the exit of aggressive US hedge fund Jane Street, but also by a sharp drop in market volatility, according to experts. With no price-moving triggers visible currently—think tariffs, fresh wars—and earnings mostly in line with expectations, traders have perched themselves on the fence, leading to lower volumes and a quieter market. In the first 13 trading days of July, the average daily premium turnover fell 20% on the BSE and 13% on the NSE compared to the same stretch in June, exchange data showed. Market regulator Sebi's (Securities and Exchange Board of India) interim Sebi order against Jane Street came on 3 July. Read more: Brokers push back as Sebi wages war on speculation According to Shrikant Chouhan, head of equity research at Kotak Securities, the impact of Jane Street's exit on derivative volumes could not exceed 10%. In the same 13-day period, the India VIX index fell 20%, indicating that the fall in average options premium turnover–total value of premiums paid on all options contracts–is not just because of the US prop desk firm. The India VIX measures expected market volatility over the next 30 days based on Nifty options prices. The index is currently at 11.98, reflecting subdued market sentiment. Calm on the Street Experts say the low volatility is because of no near-term event of tariff. Plus, earnings are on expected lines, which can keep volatility under control. 'Volumes have also come down with a neutral news flow, lacklustre Q1 earnings expectations, and no near-term triggers," Chouhan said. Dinesh Nagpal, a technical expert and a trader, said the world has come out of a major global turmoil after the US tariff situation and the Iran-Israel conflict. 'So, with no turmoil currently or expected in the near future, volatility tends to stay quiet," he said, adding that the Nifty index is also in a very narrow range for the same reason. To be sure, the Nifty50 has been trading in the 24,968-25,541 range in July. 'The market has become lethargic, almost addicted to a trigger and in the absence of that, it's just sideways," Nagpal said. Adapting to Jane Street's exit Some participants will have to change their trading strategies in order to adapt to an environment without Janes Street, a development that experts said will keep many traders on the sidelines. Rajesh Palviya, senior vice president, technical and derivatives research at Axis Securities, said Jane Street traders would typically take big positions on expiry days. Now in their absence, local players like HNIs, hedge funds, and high-frequency traders (HFTs) will have to change their strategies, he said. Read more: Retail investors are walking the wire. Sebi should let VCs join the show. 'The local players—whose strategies were designed to counter the kind of expiry-day moves that Jane Street was making—may be in a testing phase before taking big bets in the market," Palviya said, adding that trading volumes would pick up in a couple of months, once the participants gain confidence in their new strategies. Long July A long expiry month of July is another reason, with 31 July being a Thursday—Nifty contracts expire on the last Thursday of a month. 'This means that the extended window gives traders more time to react and adjust positions, leading to a stretched-out and a low-volatility phase in the earlier part of the month," Chouhan said. However, some of the drop in volumes in the derivative space is indeed because of Jane Street. Another F&O trader, speaking on condition of anonymity, said that due to Jane Street's exit, artificial price moves in the market have significantly reduced. Earlier, the firm's large-sized trades often led to random and abrupt price movements. 'With their absence, such distortions have largely disappeared, resulting in a much calmer and more orderly market environment, and reduced volatility also," this trader added. Preeti Chabra, founder at Trade Delta said that while some big players have exited and the volumes have dropped, the overall liquidity—without a huge price disruption—remains intact. 'This is because other market makers like HFTs continue to operate, providing the necessary depth and stability," she added. Read more: Financial distributors turn to GIFT City for outbound funds. But few can enter.
