An unprecedented ban on India's largest property developer from tapping capital markets has fuelled expectations of tougher penalties ahead, as the country's regulators feel emboldened to take on even companies long sheltered by political connections.
The result has been a slide over the past week in shares of firms known to be under investigation -- adding to what was already a year-long weakness in the stocks of companies seen as tied to the Congress party, which was ousted from power in May.
Cleaning up India's grubby business climate is top of the agenda for both regulators and Prime Minister Narendra Modi's government, which was elected in May partly on a promise to do just that. India ranks 94th among 177 nations in the global corruption index published by Transparency International.
"If you are in a business which depends on government largesse, then questions will be asked," said Avinash Vazirani, a London-based manager with the Jupiter India Fund.
Shares in Jindal Steel and Power Ltd, for example, have dropped 8.6 percent since Oct. 13, when regulator SEBI announced its bar on the country's largest listed property developer DLF Ltd.
Local media also reported that police are investigating the firm over accusations it paid bribes to secure coal blocks. Jindal's chairman is a former member of the Congress party.
"JSPL (Jindal Steel) reiterates that all its actions are in keeping with the legal framework of the country and that it complies with the law in letter and in spirit," the company said in a statement to Reuters.
"JSPL continues to cooperate with all the authorities in a responsive manner."
Other investigations of companies with ties to Congress include one into whether a former minister allowed Malaysia's Maxis Group to take over an Indian mobile carrier in exchange for investments in Sun Group companies belonging to the brother of the minister.
Companies belonging to the Sun Group have fallen. Sun TV Network Ltd has dropped 5 percent since SEBI's ruling on DLF, while the broader index has been flat. Sun Group did not immediately respond to requests for comments.
DLF itself has slumped 17.4 percent since the SEBI ruling.
The punishment doled out to DLF - for failing to provide key information on subsidiaries and pending legal cases at the time of its initial public offering in 2007 - showed how painful the clean-up process could be, even for heavyweights with political ties.
It came weeks after the Supreme Court cancelled more than 200 coal mining licenses, citing the arbitrary and illegal allocation process of the previous government, which threw billions of dollars of investment into question.
The new government says it will auction the cancelled blocks, spurring hopes of more transparent allocations.
DLF - whose founder has traced his success back to a chance encounter with the Congress party's Rajiv Gandhi before he became prime minister - was already fighting India's antitrust regulator in court. It is now appealing last week's SEBI ban.
SEBI did not respond to a request for comment.
Politics and business have long been closely connected in India, especially in sectors such as coal and telecoms, which depend on large government contracts and are often funded by state-owned banks. Political funding remains opaque at best.
MISSION CREEP
Investors have welcomed the effort to clean up India's capital markets, but many caution that excessive zeal carries risks for both broom-wielding regulators and investors.
The federal Central Bureau of Investigation sparked indignation after publicly announcing a probe into industrialist Kumar Mangalam Birla last December in relation to a coal block allocated to a company belonging to his Aditya Birla Group.
It dropped the case in August, citing a lack of evidence.
"There could be a risk of throwing out the baby with the bathwater - just because you have some political links doesn't mean you have done anything wrong," said Jupiter's Vazirani.
"If you look at this coal mining saga, a whole list of companies were investigated and cleared of wrongdoing. Despite that, the licenses were cancelled - because the government did not follow the law."
For others, this may be the end of the political connections that for so long oiled the wheels of business in India.
Saurabh Mukherjea, head of institutional equities at Ambit Capital, maintains an index of 75 stocks whose core competitive advantage is political connectivity. It has underperformed the broader BSE index since 2011, despite an improved performance in the lead-up to the April-May general election.
Modi himself has not commented on regulatory investigations or legal cases. But he has not been shy about making political hay from accusations of Congress party sleaze, harping on DLF land transactions in the state of Haryana ahead of elections there last week. DLF has denied any wrongdoing.
