Sebi must rein in promoter power: India’s equity markets are undergoing one of the most consequential transformations in independent India’s economic history. What was once a domain largely inhabited by institutions and a thin layer of urban investors has become, within a remarkably short span, a widening arena of household participation. Demat accounts have crossed 21 crore, and unique investors have moved beyond 12 crore, signalling not just deeper markets but a new social reality: the Indian middle class is no longer only saving for the future, it is owning a share of it. That shift changes the very meaning of investor protection.
It is in this context that the question before policymakers is often framed as whether India’s equity markets are becoming over-regulated. But that framing is too blunt, and in some ways evasive. The more serious inquiry is not about the quantity of regulation, but about its direction. Are we regulating what is easiest to see, or what is hardest to abuse? Are we expending our institutional energy on the optics of retail participation, while the deeper structural vulnerabilities of promoter control, related-party extraction, and leverage remain less sharply confronted?
There is an instinctive comfort in regulating what is visible. Retail trading is visible. Its exuberance is visible. Its volatility is visible. When markets swing, when speculative froth rises, when derivatives volumes draw attention, the regulatory response is swift and often headline-ready: tighter margins, enhanced surveillance, new trading curbs, an unmistakable signalling that the small investor must be protected from his own enthusiasm.
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Promoter power and governance risk
It is also important to acknowledge that India’s regulatory strictness has not emerged in a vacuum. As Indian equity markets have grown rapidly into the world’s fourth-largest, the impulse toward muscular oversight is, in many ways, a response to the enduring risk of fraud, manipulation, and informational asymmetry. Measures against insider trading and unfair trade practices, the insistence on corporate governance safeguards, and disclosure standards aligned with global norms such as IOSCO are all part of ensuring that retail investors are not structurally disadvantaged by larger operators. In that sense, regulation has often been the price of integrity in a market expanding at unprecedented speed.
Yet the truth, borne out by the long memory of markets across the world, is that the gravest market injuries are rarely inflicted by the retail participant. They are inflicted by those who possess control, information, and structural advantage.
India’s market story in 2025 offered a revealing illustration. Promoters sold shares worth roughly Rs 1.38 trillion through secondary market deals, an unprecedented scale of offloading. Promoter selling invites a fundamental question: as public participation widens, are promoters increasingly using the market as a mechanism to monetise and de-risk, while households absorb the longer horizon of uncertainty? In such moments, governance becomes the only assurance that the small shareholder has that public capital is not merely liquidity for private exit.
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Enforcement, not disclosure, defines SEBI credibility
This is where the debate around investor protection must mature. Protection cannot be reduced to managing retail sentiment or policing speculative optics. The true fault lines of Indian capitalism lie elsewhere, in the quiet corridors of corporate control. Related-party transactions remain one of the most persistent governance vulnerabilities in a market dominated by family-owned business structures.
The listed company often sits within a broader promoter ecosystem of affiliated entities, and while many transactions may be legitimate, the architecture itself creates an ever-present temptation for value to be shifted subtly away from minority shareholders. SEBI has repeatedly tightened the framework, and its October 2025 circular requiring fuller information for audit committees and shareholders is a meaningful step. But the fact that regulators must return again and again to this issue tells its own story: disclosure is necessary, but disclosure alone does not dissolve incentive. A governance problem cannot be solved by paperwork if the underlying balance of power remains unchanged.
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One of the more unsettling imbalances in India’s market discourse is that governance risk seldom commands the immediacy that retail trading optics do, particularly in euphoric, rising phases. The public conversation becomes absorbed by price action, momentum, and speculative churn, while deeper fault lines such as promoter pledging, conflicted related-party arrangements, and inattentive board oversight remain largely invisible until they rupture into scandal. Related-party transactions, it must be said, are not inherently improper; listed companies transact with connected entities within SEBI’s LODR framework every day. The concern is that too often the letter of compliance is honoured while its spirit is quietly subverted, with corporate structures used to privilege promoter ecosystems over minority shareholders.
Regulatory responses have tended to expand definitions and tighten procedural architecture, but the more fundamental challenge is enforcement: abuse does not disappear because disclosures grow longer. In markets where retail participation moves at digital speed, accountability for governance violations still arrives far more slowly, creating a dangerous asymmetry between the velocity of speculation and the lag of consequence.
Promoter leverage through pledged shares is another structural vulnerability that rarely receives the urgency it deserves. A pledge is latent fragility. It converts public equity into collateral for private borrowing, and it creates a direct channel through which promoter stress can become market shock. Exchange disclosures continue to show significant instances of promoter holdings being encumbered, a reminder that beneath the surface of market optimism lie financial structures capable of sudden destabilisation.
It is here that the promoter community’s complaint of over-regulation must be met with candour. India is not over-regulated in any simple sense. It is unevenly regulated. It is often strict where behaviour is visible and politically uncomplicated, and softer where power is entrenched and governance failures are harder to prosecute. The result is a market architecture that can feel intrusive to the small participant while insufficiently fearsome to the controlling one.
What India requires now is not a thicker regulatory manual, but a sharper enforcement spine. Disclosure, however elaborate, cannot substitute for consequence, and investor confidence ultimately rests not on how many rules exist, but on how swiftly and credibly they are applied. The next phase of market regulation must therefore be anchored in stronger investigative capacity, faster adjudication, and penalties that arrive in time to deter, not years later as postscript. Governance must become more than a compliance ritual; it must become a real cost of capital, where companies that tolerate conflicted transactions, opaque leverage, or promoter excess find that markets price them accordingly and regulators respond without hesitation.
The next phase of India’s market evolution therefore demands not more regulation for its own sake, but better regulation in its moral and structural focus. Investor protection must become more foundational. It must mean sharper intolerance of conflicted transactions, stronger deterrence against insider advantage, more credible enforcement against opaque leverage, and a governance culture in which public capital is treated not as a resource to be harvested, but as a fiduciary responsibility to be honoured.
As India’s markets grow larger and more democratic, investor protection cannot remain a performative response to retail noise. The real burden of regulation is not to constantly discipline the smallest participant, but to demonstrate, unmistakably, that the regulator’s presence is independent, consequential, and unafraid. In a market increasingly funded by household capital, the mightiest promoters and the most influential corporations must operate not merely within the letter of compliance, but within the spirit of fiduciary restraint. That is the hardest test of a markets regulator: to prove that power does not dilute accountability, that influence does not soften enforcement, and that public capital is never treated as private convenience. This is where SEBI’s true potential, and its existential purpose, will ultimately be judged.
The real test of investor protection is not how tightly we watch the small investor, but how firmly we bind the powerful one.
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Srinath Sridharan is a strategic counsel with 25 years experience with leading corporates across diverse sectors including automobiles, e-commerce, advertising and financial services. He understands and ideates on intersection of finance, digital, contextual-finance, consumer, mobility, Urban transformation, and ESG. Actively engaged across growth policy conversations and public policy issues.