The American firm Hindenburg Research’s damning report on the Adani company has shaken the Indian stock market this week. The Sensex and NIFTY came down to a three-month low in just two trading sessions. Such was the impact of the report that the share market plunged by two per cent on Friday.
The 32,000-word report accuses the Adani group of tax fraud, money laundering, corruption and financial impropriety and claims it has a total debt exceeding its equity value. The companies owned by the group are overvalued by as much as 85 per cent if the report is to be believed. The Hindenburg Research goes on to state that the shares of these companies are in a short position. In simple terms, the firm believes the value of these shares is bound to come down. It has cited several technical reasons for this belief.
The report led to the heavy selling of Adani group’s shares. Five out of the group’s 10 stocks- Adani Ports, Adani Enterprises, Adani Transmission, Adani Green Energy and Adani Total Gas went down by 20 per cent in just a day’s trading. The Adani Power and Adani Wilmar were also hit badly. The Ambuja Cement shares depreciated by 25 per cent before a marginal recovery. The Adani Group became poorer by a whopping $29 billion in just two days and Gautam Adani slipped from fourth to seventh rank in the world’s richest rankings. Bill Gates and Warren Buffet are now placed ahead of him. The Forbes real-time billionaires data pegs the total loss to the Adani Group on Friday at $21.9 billion and its total worth has come down to $ 97.3 billion.
The investors were at the receiving end of this market bloodbath as they lost nearly 4 lakh crore rupees within two trading days. The nervous sentiment spilt over to the market with most shares witnessing a downslide. It is often seen that heavy selling-off within a short period leads investors to sell even profit-making shares. The market is witnessing a similar trend this time as there are few takers for the analysts’ advice to keep patience.
Several questions are being asked about the intentions of Hindenburg Research’s motive behind the report. Short trade refers to dealings where shares are sold even before they are bought. The short sellers benefit from lowering share prices, meaning thereby, the plummeting of Adani’s shares works in Hindenburg’s favour.
The firm has exhibited a similar pattern in the past. Established in 2017 as a forensic financial research company, Hindenburg Research looks for financial anomalies in the market by analysing equities, credits and derivatives and invests its money based on the findings.
There is history attached to the name of the firm itself. The Hindenburg was the infamous US airship that met a tragic accident in 1937. The company also derives profits from potential catastrophes in the market. The social media giant Twitter, electric vehicle company Nikola, and the Bollywood production company Eros International are some of Hindenburg’s high-profile targets in the past five years. The company has a mixed record with the veracity of the facts that it has claimed to bring to light. But its modus operandi remains the same; earn profit by bringing down share prices. It has already earned a heavy profit in this case also, even before the accusations have been proven.
The Hindenburg Research is among the 30 companies under the scanner of the US Justice Department for allegedly shaking down major companies for vested interests. The actions being probed by the department are similar to what we have seen in the present controversy. The firm’s founder Nathan Anderson is self-admittedly an expert in anticipating corporate debacles and making money out of them. The Hindenburg Research also faces the allegations of illicitly extracting information from a big fund for financial gains.
Not only the reputation of the company but the timing of its report is also questionable here. It came just ahead of the Adani Group’s Follow-on Public Offer (FPO) that is available for subscription at discount till 31 January. The FPO had aimed to collect Rs 20,000 crore from the Indian market and was pegged as the biggest offer of its kind in the Indian share trading history. However, the response hasn’t been the same as expected after the Hindenburg’s alleged expose. In other words, it has not only hit the Adani Group’s market capitalization but also its FPO.
Meanwhile, the Adani Group has signalled legal action. There are several precedents for such a remedy. The Florida-based bank Atlantic had taken a market analyst to the court under similar circumstances in 2008. The world’s biggest car rental company Hertz Global Holdings also filed a defamation action against another analyst in the following year. One of the world’s biggest digital asset exchange companies Binance initiated a similar legal action against Forbes Media in 2020. Edelweiss Financial Services had filed a $100 million suit against the global credit rating agency Moody’s for publishing a damning report against it. The onus of proving the malafide intent and inaccuracy of the report is on the litigant party in such cases and doing so will not be an easy task for Adanis in this case.
The crisis has triggered other worries in India. The Adani Group has huge stakes in India’s development with investments in sectors as diverse as ports, roads, railways and airports to green energy. It has become a symbol of the country’s financial ambitions. The group is not only partnering with the government in several crucial infrastructure projects but also areas of renewed priority for the nation’s development. It has established global benchmarks in sectors like renewable energy and is also playing an important role in building indigenous capacities in many strategic areas like semiconductors and weapons. More than capital, it is the group’s implementation capacity that is a contributing factor in the country’s development.
Most public sector companies are still not robust enough to become the engine for the country’s growth. Most private sector giants are shy of taking risks. The Adani Group is filling the gap well under such a scenario.
This writer believes the Hindenburg Research’s alleged revelations are not just targeted against one corporate group, but against India’s ambitions to forge ahead towards the ‘Amritkaal, the era of elixir.’ We also cannot ignore the interests of the Indian market investors who run the risk of losing their hard-earned savings for unproven accusations.
