INTRODUCTION
Most people would have thought that a think tank based in the United States possesses significant enough impact to influence the Indian stock market with the Adani Group’s plummeting values. On the other hand, stock market enthusiasts are swamped with investigations into whether the Hidenburg research group qualifies as research analysts as per the criterias set by SEBI (Research Analysts) Regulations, 2014, which enabled them to release the publications as a research reports. Hindenburg Research, a short-seller based in the US, recently released a lengthy research report in which it criticized Adani’s operations and boldly claimed it had committed the largest fraud in corporate history.
Markets are not impregnable and can be manipulated by mischievous reports, but in this case, it can not be concluded that no significant claims are incorporated within the report. In India, the market capitalization of the seven listed firms owned by the Adani Group fell by Rs 1 lakh crore ($10.73 billion) after a report by Hindenburg Research was released. On January 27, 2023, the crash persisted for the second day in a row. On Friday, the Supreme Court asked the Securities and Exchange Board of India (SEBI) and the government to provide information about the current regulatory framework for protecting Indian investors who have lost several lakhs of crores in the last two weeks. Hindenburg could be brought to financial ruin by Adani Group by refuting and discrediting the findings. It was a testament to their validity that they were unable to confirm Hindenburg’s finding prior to the market.
ABOUT THE RESEARCH REPORT
Hindenburg Research found that the conglomerate shorted several assets in the group through its US-traded bonds and derivative instruments. Short selling occurs when an investor sells all the shares that he doesn’t already own at the moment of a trade. An investor uses a brokerage to buy shares from the owner and then sells them at a profit after prices rise in the future. Several factors may lead to investors’ predictions of a particular firm’s stock price falling, such as an upcoming earnings report or other important factors. Specific connected securities may be too complex for an investor. Short selling may be used by these investors to protect themselves against downside risk. According to the research, key listed Adani companies have also accrued significant debt and pledged shares of their inflated stock as collateral for loans, placing the group’s overall financial situation in jeopardy. Near-term liquidity strain is indicated by “current ratios” below 1 reported by 5 of 7 important public corporations.
Approximately $17 billion in corruption, tax fraud, and money laundering suspicions have already been raised against Adani Group in four recent federal fraud investigations. Tax haven countries, including Mauritius, the UAE, and the Caribbean islands, are accused of hosting offshore shell companies for members of the Adani family. According to Adani’s response to this matter, the Hindenburg research report is plagued with conflict of interest and simply intended to feign a market for securities so Hindenburg, a self-avowed short seller, can illegally profit.
FURTHER DEVELOPMENTS
In an effort to protect Indian markets from manipulative research reports, including those from foreign entities, the Securities and Exchange Board of India has announced standards for “research analysts” to prevent conflicts of interest in their activities following the recent Adani-Hindenburg research saga. According to the new regulations, any individual aiming to work as a research analyst must register after fulfilling the requirements for qualifications, capital sufficiency, the creation of internal policies and procedures, firewalls against conflicts of interest, and adequate and timely disclosures, with SEBI imposing stringent actions against the negligent research analyst.
Last Monday, the Supreme Court proposed creating an expert committee to look into the accusations and requested the Center’s answer. The top court has requested SEBI’s response to change the regulatory framework. The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003; the SEBI (Prohibition of Insider Trading) Regulations, 2015; the SEBI (Foreign Portfolio Investors) Regulations, 2019, and the Offshore Derivative Instruments (ODI) norms, among other provisions, apply to the investigation based on the submission note made by SEBI to the Supreme Court of India.
Advocates M. L. Sharma and Vishal Tiwari filed petitions, which the Supreme Court is currently examining. In his plea, Sharma requests that Nathan Anderson of Hindenburg Research and his friends in India and the US be prosecuted for allegedly taking advantage of investors and causing the stocks of the Adani Group to “artificially drop.”
CONCLUSION
In the past, Hindenburg had published reports on businesses like Nikola, calling out a “vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors.” The report, titled “Nikola: How to Parlay an Ocean of Lies Into a Partnership With the Largest Auto OEM in America,” was released in September 2020. Trevor Milton, the founder and executive chairman of Nikola, left the business after this.
The thought-provoking question is: what does the attacker of the Adani firm, Hindenburg Research, get from the misery of one of the world’s largest business tycoons? The profits and leverages gained by the Adani group in the year 2022 have been annihilated with the publication of the report, and the speculation regarding whether Hindenburg was manipulating th stock market being a short seller is another conundrum worth revisiting. The future of the Adani Group and its further repercussions legally have to be closely monitored within Indian jurisdiction to ascertain if the fate is the same as that of the other companies investigated by the think tank.
Written by Aathira Pillai
Edited by Yashvi Vasani
