Madhabi Puri Buch: Allegations mount against India market regulator Sebi amid bull run

For the moment, investors seem unperturbed by the events of the past month.

“Global investors already pay a regulatory risk premium when they invest in India, they will ignore this,” said a veteran trader.

But things could take a turn for the worse if the controversy snowballs further, says Mr Hazari.

“Institutional money can flee if internal warnings go out around compliance issues. And then retail investors will slowly start pulling out of the market,” he adds.

With pressure mounting from both outside and inside Sebi, some say Ms Buch is now faced with the very real question of leaving her post.

Her position was “untenable” a few weeks ago, but has become increasingly “unsustainable” now, Subhash Garg, a former finance secretary, told journalist Barkha Dutt on Mojo Story, a digital outlet.

A resignation or a suspension would be seen as an admission of guilt, which neither Ms Buch nor the government would want.

At least three market experts the BBC spoke with said the most likely outcome of the controversy will be that Ms Buch’s appointment won’t be renewed. Her current three-year tenure as chairperson ends in February 2025.

“For me what’s most astounding is that the government has been totally silent. They need to step in now. When serious allegations are made against the head of a regulator, the government or the judiciary are the only higher authorities which can authorise a credible investigation,” said Mr Hazari.

Others have also called for the board of Sebi to step in and publicly address the allegations.

An executive at a foreign fund house who spoke to the BBC on condition of anonymity said global investors will watch the way the government handles the matter, and how swiftly it acts.

“This will affect investor sentiment going forward,” he said.