Bleak accusations?

Earlier this year, the Supreme Court had reposed trust in the Securities and Exchange Board of India (SEBI) by refusing to transfer the probe into the allegations of stock price manipulation by the Adani group to a Special Investigation Team (SIT). The verdict came as a setback to Hindenburg Research—a US short-seller whose initial report back in 2023 had dealt a severe blow to India’s Adani Group. The Hindenburg report had led to a plummeting of Adani Group’s stocks by a staggering USD 150 billion—pushing Gautam Adani from the 2nd to 25th position in the list of richest persons in the world. Following the Supreme Court verdict, the SEBI issued a show cause notice to Hindenburg, asserting that there were certain “misrepresentations/inaccurate statements” in 2023 Hindenburg Report, which “built a convenient narrative through selective disclosures, reckless statements and catchy headlines”— intended to deflate prices to “the maximum extent possible and profit from the same.” Unsurprisingly, the Hindenburg retaliated by expressing its intent to file an RTI meant for ascertaining links between SEBI and Adani Group.

It is important to understand this chronology because now, almost as a revenge, the US research firm has come to target the Indian financial market regulator with what can safely be called half-cooked theories. However, given the serious nature of the allegations, a careful assessment of the same may be required by competent authorities in India. The fresh salvo by Hindenburg accuses that the investigations carried out by SEBI into insider trading and other stock market violations by the Adani Group is compromised. In order to substantiate its claims, Hindenburg has attempted to establish a conflict of interest between SEBI chairman Madhabi Puri Buch and Adani Group through certain emails and public documents indicating that the chairman, along with her husband, had invested in small funds where Adani’s associates had a major stake meant for syphoning money.

The links suggested by Hindenburg are rather too weak. The first reason is that the investment in the fund preceded Madhabi’s association with SEBI. The second, and the more convincing counter came from SEBI itself which maintains that "relevant disclosures" were made by Madhabi from time to time, and that she also recused herself in matters involving potential conflicts of interest. The Hindenburg appears to establish ambiguous links by exploiting emails sent by Madhabi on behalf of her husband after she technically handed over certain financial engagements to him, trying to make the most out of the remotest clue possible. Hindenburg’s allegations this time are not just intended to establish a Madhabi-Adani Group link. It goes further by digging a range of potential financial inconsistencies in the credentials of Madhabi and his husband, which have nothing to do with the Adani Group.

While seeking truth is essential and non-negotiable, all the stakeholders in India must act cautiously by gauging the intent of the foreign research firm, which is as important as the content it delivers. The two tranches of accusations that Hindenburg has delivered since January 2023 have been accompanied by a lot of pomp and show—preceded by trailer tweets—which indicates that the report might be directed towards retail investors, and not just authorities. Resultantly, the financial losses following the first report were staggering even when the misdeeds of Adani Group were not even remotely established. This time around, fortunately, the stock market operations of Adani Group have been relatively stable despite marginal losses. The investors need to be credited for their pragmatic and cautious approach.

While the market has shown pragmatism, the political scenario in the country stands starkly volatile, with the opposition parties demanding an SIT probe and formulation of a Joint Parliamentary Committee on this matter, which is essentially ad hoc in nature. The Supreme Court, in its January ruling, had ruled out these possibilities, asserting that these measures require “exceptional circumstances.” Have those circumstances been created after the second tranche of Hindenburg revelations? One can’t say with surety. The accusations and evidence of Hindenburg revelations lack force and credence. However, they have raised a few significant questions. Were the disclosures and recusals made by Madhabi addressed to the right authorities? Specifically, within the SEBI, were they reported to the representatives of the government and the RBI, and whether or not the Supreme Court was made aware of the same? These ambiguities need to be removed with utmost clarity and honesty.