How Hindenburg exposed itself on Adani issue with its trivial report on Sebi chief

Even though stock market investors did not take Hindenburg 2.0 seriously, the Adani issue gained more political prominence now with Congress, the main opposition party, and its leader Rahul Gandhi targeting the Modi government and its alleged links with the Gujarat-based industrial house. The party demanded a probe by a Joint Parliamentary Committee (JPC) into what it called ‘Adani Mega Scam’

It’s not quite often that we get to see a trailer revving up more excitement than the actual film. This also applies to our lives and the incidents therein, sometimes. When Hindenburg Research, an activist short-seller, let out a short tweet of four words the previous Saturday (August 10) morning, a kind of tension gripped stock market participants in India. Even people without links to stock markets also got excited- at the same time anxious- about what was in store for India from the latest Hindenburg salvo.

There is a valid reason for such anxiety as well as excitement.

When Hindenburg released its first report in January 2023 accusing the diversified Adani Group and its promoters of pulling off the largest con in corporate history through accounting fraud and stock market manipulation, the stock market was in near turmoil. Around 10 listed companies belonging to Adani Group, lost their cumulative market capitalisation by a whopping 65 per cent in just five weeks. On January 24, just a day before India celebrated its 74th Republic Day, when the report was released, the total market capitalisation of Adani Group companies stood at a staggering Rs. 19.2 lakh crore. Over the following five weeks, the group’s capitalisation nosedived by Rs. 12.48 lakh to mere Rs. 6.7 lakh crore. Investors lost over $150 billion in dollar terms. There was a cascading impact on the overall Indian stock market as well.

It took almost 18 months for the group to recoup the losses on bourses. That was the impact of the report from the US-based short-seller.

So, when Hindenburg Research tweeted ‘Something big soon India’ on August 10 morning on X, the new avatar of Twitter, the tweet went viral within no time and many thought the US short-seller would release more damning report on the Adani Group or some other industrial group. But it turned out to be an anti-climax as the so-called new research report focused on Madhabi Puri Buch, the current Chairperson of Indian market regulator Securities and Exchange Board of India (Sebi) and her husband Dhaval Buch.

I went through the entire report immediately after it was released on X. To put it mildly, the report was a clever compilation of newspaper reports and details related to the couple’s investments. It also quoted statements of Madhabi Buch favouring real estate investment trusts (REITs) investments and alleged conflict of interests in those statements as her husband is an advisor to Blackstone, which launched two REITs in India. What Hindenburg meant was that her promotional statements benefited Blackstone directly and her husband indirectly. However, the more serious allegation was related to Buch’s investments in a Mauritius-based fund in which Vinod Adani, brother of Adani Group founder Gautam Adani, has also invested.

In its first report, the US short-seller alleged that Vinod Adani used tax havens like Mauritius to round-trip funds in order to manipulate stocks of the Adani Group companies in the Indian stock markets.

It went on to say that because of her investments in the Mauritius-based fund with links to Adanis, the Sebi did not conduct proper investigations into the allegations levelled by it in its first report against the Adani Group despite an order to that effect from the Supreme Court of India. But the fact of the matter is that her investment in that Mauritius-based fund is not big.

The chances of the Sebi chief exonerating Adani Group to protect her small investments are remote. Further, she made it clear after the Hindenburg Report 2.0 was out that she exited from that fund before she took charge as the Sebi chief. All other allegations against her in the report are not of serious nature. Further, this report against the Sebi chief seems to be in retaliation to the show cause notice issued to it by the market regulator for allegedly profiting from the stock market rout of Adani stocks.

That’s the reason why Indian stock market investors have not taken the allegations from Hindenburg seriously this time. Though Adani Group’s stocks plunged in the early trading session of Monday (May 12), the first trading session post the latest report, most of them recouped major chunk of the losses by the evening on the same day. These stocks lost more than $13 billion in the early trade on that day before bouncing back. As a consequence, the overall loss in market capitalisation was only $2.23 billion on the first day. Moreover, there is likelihood that the Adani Group stocks are likely to recoup all the losses that they have suffered due to the Hindenburg 2.0 issue. For a group, which recouped a whopping Rs 12.48 lakh crore after the Hindenburg 1.0, the latest loss in market capitalisation is no big challenge to handle.

Therefore, with its half-baked second report, Hindenburg exposed itself on the Adani issue. A deeper research and more evidence on the Adani Group’s alleged manipulations would have given more credibility to its first report. But that did not happen.

Even though stock market investors did not take Hindenburg 2.0 seriously, the Adani issue gained more political prominence now with Congress, the main opposition party, and its leader Rahul Gandhi targeting the Modi government and its alleged links with the Gujarat-based industrial house. Congress even called for a nationwide protest on August 22, demanding a probe by a Joint Parliamentary Committee (JPC) into what it called ‘Adani Mega Scam’. It also demanded the resignation of the Sebi chief.

It is to be seen how effective this agitation will be against Adani group as Congress-ruled States, including Telangana, have invited investments from Adani Group with open arms. Moreover, it is proven beyond doubt that such a stand against a big industrial house like Adani Group will not fetch any political mileage to the Congress party.

But there is an urgent need to put in checks and balances so that the Indian markets and its major constituents will not suffer whenever such reports come out. That’s more important as the number of small retail investors are growing by leaps and bounds in India and there is an immediate need to protect their interests and investments. That’s more important.