InGovern Research calls for regulatory safeguards against short sellers

Governance firm InGovern Research has called for investor safeguards, citing market volatility triggered by offshore short-seller reports. This follows Viceroy Research’s July 9 report alleging governance issues at Vedanta, which caused an intraday stock plunge of nearly 8 per cent.

 

While acknowledging short-selling as a legitimate, regulated activity that aids market liquidity and price discovery, InGovern has emphasised that such reports often serve the financial interests of their authors.

 

Critical research reports by short-sellers with negative interpretation of public data may lead to market reactions bordering on panic, which may benefit the short-seller financially from subsequent movements in stock or bond prices, the report noted.

 

InGovern highlighted a significant regulatory gap — foreign entities like Viceroy, which are not registered with the Securities and Exchange Board of India (Sebi), can publish reports impacting Indian markets without facing domestic scrutiny.

 

“Foreign research outfits not registered with Sebi can publish reports on Indian companies without being subject to Indian regulatory scrutiny — even when their actions directly impact Indian investors and markets,” stated InGovern, referencing similar past incidents like Hindenburg Research’s report that prompted regulatory reforms.

 

Sebi mandates registration for research analysts covering Indian securities, ensuring accountability and oversight. However, this applies only to domestic entities.

 

On Vedanta, InGovern advised contextual analysis of short-seller claims, noting that debt servicing through subsidiaries is common globally if transparently managed. The firm also observed increased investor scrutiny of Vedanta’s related-party transactions and capital allocation in recent shareholder meetings.

 

Meanwhile, industry voices, including Zerodha founder Nithin Kamath, underscored India’s structural lack of short-selling mechanisms.

 

“Unless we make shorting of stocks easy in the Indian markets, price discovery will be impaired. India has been a structurally long-only market, with almost no shorting activity, because borrowing stock to short is really hard and is an offline process,” Kamath wrote on his social media handles, highlighting the lack of short-selling talent.

 

InGovern’s analysis stresses the need for regulatory parity to protect investors and ensure market stability amid rising cross-border financial activism.