Sebi probe narrows in earnings leak case

Last month, the markets regulator had initiated a probe against a dozen companies for alleged leak of sensitive information

The Securities and Exchange Board of India (Sebi) has narrowed its probe in the WhatsApp earnings leak case.

According to sources, seven companies whose price-sensitive information had leaked on social media before being made public have been cleared. Five companies were being further probed. Reportedly, some are blue-chip ones.

Last month, the markets regulator had initiated a probe against a dozen companies (including Dr Reddy’s, Cipla, Axis Bank, HDFC Bank, Tata Steel, Wipro and Bajaj Finance) for alleged leak of sensitive information. The others were Mahindra Holidays and Resorts, Crompton Greaves Consumer Electricals, information technology service providers Mindtree and Mastek, and India Glycols, a petrochemicals entity.

On November 17, news agency Reuters named these 12 companies whose September quarter earnings were being circulated on various private WhatsApp groups. Under Sebi’s Prohibition of Insider Trading rules, disclosing any unpublished price-sensitive information and trading on this is forbidden.

Sources say Sebi identified the five companies after analysing and examining their trade data of 12 months. Further, it had matched the leaked earnings with the actual results of the September quarters, to detect possible breach of the Prohibition of Insider Trading Regulations. Sebi said to have matched the leak and actual figures for three financial parameters — net profit figures, gross sales and operating profit.

“Leaked information for some of these firms is closely matching with the actual earnings. Some more information related to these needs to be verified,” said a person privy to the development.

An earnings announcement is keenly awaited by investors. Stock prices tend to react sharply to earnings data — investors dump shares if these fail to meet expectations and buy more if the earlier estimates are surpassed. The regulator is, therefore, considering the leak of earnings information a serious breach.

Last week, all these 12 companies' senior officials were called by the regulator. They were asked for explanations on what happened and what they’d done to ensure against a recurrence.

Even before this episode, the markets regulator has been cracking down on misuse of social media platforms. It recently took action against several entities for misusing names of prominent brokers to spread stock tips. Sebi has also been cautioning investors to only deal with registered investment advisors and research analyst.

Last year, it issued a consultation paper on curbing unauthorised investment tips through social media. It had also sought greater checks and balances for online investment advisory services and the use of automation or robotic tools.