Probing to Find the Truth: Adani – Hindenburg Controversy

After exposing the Indian company, Adani Group, of “a blatant stock manipulation and accounting fraud scheme”, Hindenburg has made headlines in Indian media. In addition to analyses of hundreds of papers and interviews with former Adani senior executives, it referenced two years of investigation. The charges have been denounced by the Adani Group as “a vicious combination of selective misinformation and stale, unsubstantiated and discredited allegations that have been tried and dismissed by India’s highest courts.” Hindenburg’s allegations have caused the fortune of Adani Group’s founder, Gautam Adani, to slide by more than $34 billion in just a week, according to the Bloomberg Billionaires index.

India’s supreme court has set up an independent panel to investigate if there were any regulatory failures related to allegations against the Adani Group, after a bombshell report from a U.S short seller Hindenburg. The country’s highest court directed the 6-member panel to investigate “regulatory failure in dealing with the alleged contravention of laws pertaining to the securities market in relation to the Adani Group,” the court order said. The committee will also provide an “overall assessment of the situation including the relevant causal factors which have led to the volatility in the securities market in the recent past,” added the court order.

In addition, the panel will suggest measures to strengthen the regulatory framework and “secure compliance with the existing framework for the protection of investors.” The Supreme Court has also directed the country’s markets regulator, the Securities and Exchange Board of India, to probe “whether there was any manipulation of stock prices in contravention of existing laws,” the court order said.

SEBI has been asked by the Supreme Court to find out whether there is any violation of the Security Contract Act, or any other provision of the law. SEBI may take more time to probe than allowed by Supreme Court. It will possibly assign a head make sure the manipulation angle is correctly probed. SEBI’s findings will be evaluated by the Supreme Court appointed panel.

Among others, one fear that materialized as the Adani Group began its descent was that its troubles could ripple through its lenders to afflict other borrowers. But as its books are scrutinized, it has become clear that its debt is concentrated among lenders backed by the Indian state, mainly the Life Insurance Corporation of India and the State Bank of India, and by foreign banks. Neither poses much risk of pain among India’s ordinary citizens, but if the life insurer were to incur billions in losses, it would impose a burden on the country’s fiscal deficit.

The initial concern, as the fallout from Hindenburg’s accusations forced the Adani Group to cancel a major share offering on February 1, 2023, was that the plague of doubt would spread throughout India’s capital markets. Would Indian or foreign investors dump India’s stocks and bonds at random, suddenly frightened that their value might plummet, too?

The Lessons for India’s financial market include the following:

Even though the clouds of uncertainty and suspicion on India’s corporate governance are getting darker, it is interesting to know that just as of 2nd March, 2023 all Adani group stocks ended with gains. Some of these interesting facts are as follows:

  1. Adani Group stocks add Rs 30,000 crore in market capitalization in today’s session
  2. All group companies end with gains and have added Rs 1 lakh crore in market capitalization over the last three sessions.
  3. Adani Enterprises ended off the day’s high but with gains of 1.5 percent after being locked in a 10 percent lower circuit
  4. Adani Ports ends among top gainers of Nifty 50 with gains of 3 percent
  5. Most other group companies end in a 5 percent upper circuit

So, it is highly unlikely that Adani group will have to face tragic downfall in near future. But the episode of investigation will surely have impact on its market reputation and the consequences will be far reaching. Hence it is pertinent to understand the lessons of this case for financial market in India.

The fears of a broader market contagion have not come to pass. Indian equities as a whole enjoyed a calm week in Mumbai, the country’s financial centre, and have held largely steady since the Adani collapse. India’s main market index is nearly 2.5 percent above where it stood a year ago, even as U.S. stocks have fallen by more than 4 percent during the same period.

The steadfastness attests to the size and seeming strength of the broader Indian business landscape. Adani fell spectacularly after it was accused of fraud and stock manipulation by a small New York trading firm, but the debacle is barely a splash from the big Indian bucket. India is now home to about 1.5 million companies and a well-capitalized stock market: Its National Stock Exchange fluctuated comfortably between $3 trillion and $3.5 trillion last year.

Stock market and investors have shown resilience in this situation of turmoil. Corporate sector in India and overall political economy is characterized by crony and rentier capitalism for a long time. In this case also experts have cited the proximity of Mr. Gautam Adani with some of influential political party members including the ruling establishment. To what extent this political influence is valid is not a matter of concern. The repute and credibility of our market regulators is at stake due to this case. We need to work on improving the credibility of our corporate governance to safeguard the investors money to build the public trust. For any capital deficient country like India, it is highly important to ensure reliable capital formation in the domestic market in the long run in stead of relying upon foreign investment. It is possible only if investors have safe and healthy market environment and regulators are efficient. A healthy and robust investment environment can ensure financial mobilization to accelerate the real economy. Thus, it is time for us to learn a lesson from the Adani controversy.

Author’s Information:

Ms. Aparna Kulkarni

Asst. Professor, Department of Economics,

St. Xavier’s College (Autonomous), Mumbai


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