Sebi's Ananth Narayan says CFOs must deliberate on valuation mismatch of businesses

Concerns on valuations? SEBI WTM Ananth Narayan G, raises the issue with CFOs at an event.

The accounting practices of valuing assets and investments of a company may be misleading investors and CFOs need to deliberate this issue, market regulator Sebi’s Whole-time Member Ananth Narayan said on June 13 in Mumbai, while suggesting that merchant valuers may need to disclose their assumptions.

Ananth pointed out that there are some perceived challenges around valuations, and similar issues were faced earlier with credit ratings. The Sebi board member cited a perceived conflict of interest, as the valuers are hired and paid by the same entities whose assets they value. The other, Ananth Narayan pointed out, was wide divergence in valuations due to differing assumptions, often with minimal disclosure. Lack of accountability was another concern that he pointed out, especially as valuations change sharply over time.

Ananth pointed at another disturbing trend of ‘valuation shopping’ - where favourable valuations are sought - is another issue on which CFOs should ponder.

The Sebi member cited an example of credit rating agencies and said,” 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, track records, and be held accountable for egregious deviations.”

Ananth Narayan also raised the issue of governance failures, tech breakdowns, fraud and manipulation in companies, which can damage public trust. On excessive regulation, he said it can stifle innovation or growth. “As technological shifts accelerate across AI, automation, and energy, the need to nurture business creation is more pressing than ever,” said Ananth Narayan. He said, in regulation, if industry and Sebi work together, systems can be designed that balance vigilance with enablement.

Speaking on “Co-creating Regulations for Sustained Capital Formation,” Ananth Narayan stressed on the positive trend in the markets, “Capital formation will be fundamental to India, realising its full economic potential. There’s much to celebrate, and even more to anticipate”.

Ananth Narayan pointed at how the market ecosystem has grown dramatically from 4.2 crore unique investors in March 2020 to 13 crores at last count, with mutual funds investors up nearly three times to six crore in last six years. Capital raised by listed entities reached Rs 4.3 lakh crore in FY25, which is a record, with both demand and supply of equity at healthy levels.

Domestic Alternate Investment Funds (AIFs) have grown from under Rs 3 lakh crore in 2019 to Rs 13.5 lakh crore in commitment as of March 2025, and foreign capital remains engaged. As of May 2025, FPIs held Rs 71 lakh crore in equity assets in India.

Ananth Narayan said such trends reflect growing investor confidence of domestic and foreign, institutional and retail in the Indian growth story.