Daily News Analysis

Supreme Court gives 3 months to SEBI to wrap up Adani probe.

stylish_lining

Context: Refusing to hand over a probe into allegations of the Hindenburg Research report on Adani Group to a Special Investigation Team, the Supreme Court asked market regulator SEBI to continue with its investigations and complete the probe in three months.

Background:

  • In late January, Hindenburg Research, which specialises in short selling, published a report critical of the group’s finances. The research firm, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, said key listed companies in the group had “substantial debt” which has put the entire group on a “precarious financial footing”.
  • Since the day  Hindenburg Research accused industrialist Gautam Adani-led conglomerate of “brazen stock manipulation and accounting fraud scheme over the course of decades”, shares of Adani Group companies have nosedived.
  • Adani, who until recently was the richest Indian in the world, has now slipped to 22nd spot in the Forbes Real-time billionaire list for 2023.
    • Hindenburg Research is an investment research firm that focuses on analysing accounting irregularities, undisclosed indenburg Research transactions, illegal business or financial reporting practices among others.
    •  
    • It alleged that Gautam Adani, founder and chairman of the Adani  group, has added over $100 billion to his net worth over the last three years, largely through stock manipulation and fraud.
    •  
    • The research firm has raised concerns about its substantial debt.
    •  
    • Hindenburg alleged that Adani used offshore shells for money laundering and siphoned from listed companies.
    •  
    • Hindenburg revealed about short positions in Adani companies through bonds and non-Indian-traded derivative instruments.
    •  
    • As per India’s tax and SEBI laws, short selling of domestic stocks outside the country’s jurisdiction is illegal unless they are listed on any exchange.
    •  
    • While Adani bonds are listed on the US exchange, Hindenburg’s reference to the ‘non-Indian-traded derivatives’ raised the alarm for Indian regulators.

News:

The two aspects of the Hindenburg Research allegations against the Adani Group which market regulator Securities and Exchange Board of India is still probing are:

i) ownership of 12 foreign portfolio investors who hold stake in the companies of the group, and

ii) short sellers (selling without owning) in Adani shares during January 18-31 last year (around the time of the release of the Hindenburg report).

This investigation is being conducted by the regulator to find if there has been a violation of Section 19A of the Securities Contract (Regulation) Act, which stipulates minimum 25% public shareholding in listed companies.

 

Adani Group holds the position of being the most extensive private operator of India's sea and airports, overseeing 33% of the nation's air cargo traffic and 24% of its shipping capacity, in addition to contributing to the development of over 3,100 miles of the country's road network.

Short selling

It is also known as "shorting," is a trading strategy where an investor sells a security that they do not own, with the expectation that its price will fall. The investor borrows the security through a broker and sells it on the open market, aiming to buy it back later at a lower price to make a profit. Short selling is considered an advanced strategy that carries high risk and requires careful analysis and timing

Follow-on Public Offer

An FPO, or Follow-on Public Offer, is a process where a company that is already publicly listed on the stock market issues additional shares to investors. This is done after the company has gone through an Initial Public Offering (IPO) and decides to make more of its shares available.

The purpose of an FPO is to diversify the company's equity base and raise additional funds for various reasons, such as financing expansion plans, paying off debt, or funding acquisitions.

The FPO process is similar to an IPO, requiring issuers to draft an offering document and allot shares to investors before listing them on the stock exchange.

There are two main types of FPOs: dilutive, where new shares are added, and non-dilutive, where existing private shares are sold publicly. Non-dilutive FPOs do not decrease the valuation and the ownership percentage of the company. Successful FPOs require careful planning, market analysis, and risk management

Free-float methodology in stock market capitalization: This method calculates the market capitalization of a stock market by taking the equity's price and multiplying it by the number of outstanding shares available for public trading, excluding locked-in shares held by insiders, promoters, governments, and other private parties. The free-float methodology is sometimes referred to as float-adjusted capitalization. It is considered a better way of determining market capitalization as it provides a more accurate representation of a company's worth according to public investors

Impacts of such events on the economy

  • Impact on Capital Flow: MSCI's decision is expected to have a negative effect on the capital inflow into Adani stocks, particularly from passive investors who follow indices constructed by entities like MSCI.
  • Decline in India’s Index Weight: According to Goldman Sachs, India's weight in MSCI's emerging markets index may decrease by 20-30 basis points due to the reduced weight of Adani stocks.
  • Impact on Banks: Apart from the decline in Adani Group shares, banks, including the State Bank of India, which have provided loans to these companies, are also experiencing negative repercussions.
  • Affecting Investor Confidence: The negative attention generated by Adani-related headlines has the potential to dampen investor interest in Indian stocks, impacting overall investor confidence.
  • Consequences for Capital Raising: The ongoing developments can adversely affect the Adani Group's attempts to raise capital, whether through equity or debt offerings.
  • Shortage of Shares: Indian-listed entities are facing a shortage of shares available for short sellers to borrow, leading to higher costs for such transactions.
  • Impact on India’s Growth Narrative: If the downward trend in asset prices persists and further erodes investor confidence in the Adani empire, it could pose a setback to India's growth narrative, especially at a critical juncture.

INS Nistar

The Nistar is India’s first indigenously designed and constructed Diving Support Vessel, marking a step forward in the country’s naval self-reliance. Key Highlights of the Nistar:
Share It

National Commission for Minorities (NCM)

The National Commission for Minorities is currently facing a leadership vacuum. Since the retirement of the previous Chairperson and members in April 2025, the Commission is awaiting the appointme
Share It

North Eastern Region (NER) District Sustainable Development Goals (SDG) Index Report (2023-24)

The second edition of the North Eastern Region (NER) District Sustainable Development Goals (SDG) Index Report was recently released by NITI Aayog, in collaboration with the Ministry of Developmen
Share It

Corporate Average Fuel Efficiency

The study by Nomura researchers calls for reform of India’s Corporate Average Fuel Efficiency (CAFE) norms, particularly to better protect small cars. Key Highlights of the Study: 1.
Share It

Delhi’s Fuel Ban for Old Vehicles

The Delhi Government has faced considerable backlash following its fuel ban for old vehicles under a directive from the Commission for Air Quality Management (CAQM). The ban was implemented to cur
Share It

India State of Forest Report (ISFR) 2023

The India State of Forest Report (ISFR) 2023 has sparked controversy by attributing part of the negative change in forest cover to the Forest Rights Act (FRA), 2006. The claim has been contested b
Share It

International Treaty on Plant Genetic Resources for Food and Agriculture

The International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) is a crucial international agreement that plays a key role in the conservation and sustainable use of plant g
Share It

Green Climate Fund (GCF)

The Green Climate Fund (GCF) has recently approved over USD 120 million to support climate resilience projects in Ghana, the Maldives, and Mauritania. This funding aims to assist these countries i
Share It

Quad Critical Minerals Initiative

The Quad Critical Minerals Initiative launched by the United States, India, Australia, and Japan marks a significant shift in global geopolitics and economic strategy, especially with regard to cr
Share It

NITI Aayog's Proposal

NITI Aayog's proposed roadmap to boost India's chemical exports is a significant step toward enhancing the country's position in global chemical supply chains and addressing existing i
Share It

Newsletter Subscription


ACQ IAS
ACQ IAS