The whole-time member of the Securities and Exchange Board of India, Ananth Narayan, on Friday raised a red flag around valuation practices, urging India’s chief financial officers (CFOs) to help shape a more transparent and accountable regulatory framework.
Addressing CFOs at the ETCFO conference, Narayan emphasised the need for greater transparency, accountability, and disclosure standards in the valuation of company assets and investments.
“Let me flag one area that needs your attention—valuations,” Narayan said in his keynote address at the conference. “There are some perceived challenges around valuations like those faced earlier with credit ratings.”
Concerns
He cited key concerns, including a perceived conflict of interest—valuers are hired and paid by the very entities whose assets they value and the risk of valuation shopping alongside wide divergence in valuations due to differing assumptions—often with minimal disclosure and lack of accountability—especially when valuations change sharply over time.
“Just as Credit Rating Agencies (CRAs) now disclose rating histories and are held to standards, it may be time for valuers to disclose assumptions, sensitivity ranges and track records, and be held accountable for egregious deviations,” Narayan added.
The warning comes as India’s capital formation landscape scales new highs. Narayan mentioned that in FY25, listed companies raised a record ₹4.3 trillion in equity capital, while mutual funds mobilised over ₹6 trillion into equity-oriented funds. Alternative Investment Funds (AIFs) reached ₹13.5 trillion in commitments, deploying ₹1.3 trillion in the year alone.
“Our securities market ecosystem has grown dramatically—from 4.2 crore unique investors in March 2020 to 13 crore today,” Narayan said.
Still, he cautioned against complacency, stressing the need to guard against two types of regulatory failures —governance failures, tech breakdowns, fraud, manipulation (Type I errors) and—excessive regulation stifling innovation or growth (Type II errors).
Narayan called on CFOs to embrace their evolving roles as value architects. When they sign off on financial statements, it’s not a routine formality but a solemn promise that what’s presented is a true and fair view of the enterprise’s financial health.
He also flagged prior breaches of trust involving funds siphoned off from listed entities, sharp accounting practices—especially around valuations, and instances of insider trading, which prompted Sebi to tighten disclosure norms and rules around related party transactions and rumour verification.
“Regulation cannot be a one-way street,” he stressed. “Over-regulation can hamper genuine capital formation with Type II errors. We need you—CFOs (and auditors)—to be active partners in co-creating fair, balanced rules. To ensure optimum regulation.”
He encouraged CFOs to organise for formal participation in Sebi’s public consultations and regulatory forums and offered two practical trust-building suggestions—shorten the time lag between annual results and full reports, and ensure deeper, year-round engagement with audit committees and auditors.
“Our shared goal is clear: to co-create a regulatory framework that is optimum, robust, responsive, and enabling,” Narayan concluded. “Trust is the foundation. Capital formation is the engine. Regulation is the guardrail. And you, the CFOs, are at the wheel.”
