Daybreak - The wild finfluencer party is finally coming to an end

Episode Date: July 10, 2023

For many years, finfluencers have been enjoying an almost no-holds barred party in the Indian market since they operate outside Sebi's regulatory ambit. While there is no doubt about the importance of their role in combating India's rampant financial illiteracy, many often give advice that is generic, underplaying risks, and overplaying returns. After reviewing several complaints, two weeks ago, Sebi Chairperson Madhabi Puri Buch was asked about Sebi's views on regulating influencers once again. This time she did put India's financial influencers on notice. A SEBI circular seems to be on its way and finfluencers have good reason to be worried.Tune in.RecommendationSebi’s Madhabi Puri Buch and the art of keeping market players on tenterhooksDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Over a year now, Sebi or the Securities and Exchange Board of India, the country's market regulator, has been super busy. At the top of the chairperson, Madhabi Puri Butcher's mind ever seen.

since she joined Sabi in March last year, is investor protection. In the last few months, it almost seems like Sebi has opened the communication floodgates for capital market players. So much so that it has been quite a challenge for journalists to keep up with it all. For example, in the last six months, on an average, Seby has released six consultation papers, 15 circulars and 39 orders. In fact, Sebi's circulars are getting more and more prescriptive now. Everything is clearly laid out in black and white, the do's and the don'ts.

Clearly, Mada Bipuri Bucci has been coming down with an iron hand, and everyone is feeling the heat, be it mutual funds or errand promoters and financial influencers. Financial influencers or Finfluencers who have so far and it would not be a stretch to say been enjoying an almost no-holes-bought party in the Indian market. Seby has been receiving complaints about them for quite some time now, but they had their hands tight because Finfluencers are not under its regulatory ambit. But Mardabi But Butch is on a mission. And it looks like the crazy party is now on the verge of ending for Finfluencers in India. I don't know if you remember, but in all of the world, but in all of the country, it looks like the crazy party is now on the verge of the

April, I told you about why regulating Finfluences is tricky business, a slippery slope to be precise, which explains why it has been taking Sebi so long to come up with something solid. But two weeks ago, Motherby Butch was asked about Sebi's views on regulating Finfluences, and this time she did put them on notice. A Sebi circular seems to be on its way and Finfluences have good reason to be one. Welcome to Daybreak, a business podcast from the Kent. I'm your host Nick Da Sharma and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business

story that is worth understanding and worth your time. Today is Monday, the 10th of July. I think we can all agree that with the kind of financial illiteracy that is so rampant in our country, financial influencers are doing important. according to a survey by S&P, more than 75% of Indian adults do not understand basic financial concepts. The gap is even more when it comes to women. 80%. The world of investments and finance needs to be demystified and made more accessible.

And that is exactly what a lot of influencers do. But these people operate outside the ambit of any regulator. and they depend on advertisements and sponsorships to make money, which is where things get a bit shady at times. Many Finfluencers often give advice that is generic, they underplay risks and overplay returns, and of course they try to ride the market waves. Let me give you an example.

The Kent's reporters Anan Kalyan Raman and Jasprit Karra decided to track some of their advice. They ran the numbers on two. 20 recommendations on stocks and IPOs, both implicit and explicit, made by well-known influencers between January 2022 to July 2023. The list included names like Zomato, India Mart, Pt, APLO, Apollo hospitals, Manali Petrochemicals, TCS and LIC. These are all big names, more than half of their recommendations underperformed on the BSE-Sensex. The demand for regulating these Finfluences is getting louder and as you can see it is for good reason.

So now, finally, a Sebi circular is on its way. Stay tuned to find out what it's all about. In his recent story in the Ken on Madawi Butch, which I highly recommend you read, I will link it to the show notes of this episode. Anand had written about how Sebi Circulars these days are getting more and more prescriptive. For Finfluensers, this means that they will have no room for interpretation of the law after the circular comes. It is all going to be black and white. The second is that a good portion of their income may disappear. This is because entities regulated by Seby will not be allowed to do business with non-regulated entities like Finfluencers. You can imagine what a big blow this is going to be.

At the press conference, Matherby Butch mentioned exchanges, brokers, mutual funds, etc., as regulated entities, which means no more referral links to discount broker websites and no more advertisements or sponsorships from mutual funds. This could include listed companies to or those which are about to list. And also, no more IPO reviews or advertisements from such companies. either. Anand says that this list of regulated entities will likely be long and winding.

The third thing that Butch kept pointing to was that influencers or financial influencers will now have to stick to financial education. If they give inducements, which is, if they make false promises about money, it will be considered a crime. If they give investment advice and recommendations, they will have to register with Sebi. And being under Sebi is something that comes with a long list of do's and don'ts. For now, we'll just have to wait and watch how these Finfluencers react to the upcoming circular. But wait, I do want to tell you a little more about why regulating Finfluencers is not as simple as it looks. Stay tuned.

Many argue that even regulation cannot guarantee that what is passed down is correct information. For example, Ankur Wariku, who is a very well-known financial influencer, said to the ken that unless the advisee directly pays an advisor for recommendations, it is not fair to require compulsory registration. Meaning, if it is just free advice, why should it be regulated? It would also be very hard to enforce. Then, there is the option of creating something like a Scores platform for influencers. Scores is a Sebi portal that is basically used for registering complaints against Sebi regulated entities. But how will Sebi do it? To begin with, how do you even decide who to regulate? Will it be influencers above a certain level of following? Or will it be anyone who recommends

an investment? Which is why, when asked about whether Sebi would act against Finfluencer's suor motto or on the basis of complaints, Madaby Butch, point. it out again that they do not come under Seby's ambit. She gave an example. If someone advises their uncle about where to invest, Sebi can't go after them. It is not their intention to regulate those who teach people about investing. But if someone gives advice on stock recommendations, portfolio recommendations, they need to be registered with Seby. It is already a part of the investment advisor law. But she said, and I'm quoting, If you're an educator and stay with education, we have no problem at all.

End quote. To sum it all up, like Anand pointed out in his newsletter, the wild Finfluencer party may be entering its last few weeks. And while it may take more time for Sebi to figure it all out for once and for all, for now, things are going to get much more stable. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague, Rajiv Sien.