We Indians must have heard about how Gautam Adani became the second richest person in the world and, in no time, fell from the silver spot to his current 24th place because of a report by an investment firm called Hindenburg Research which blamed him for "Pulling the largest con in corporate history".
Here is a summary of the whole situation.
On 24th January 2023, Hindenburg Research released a report titled "Adani Group: How The World's 3rd Richest Man is Pulling The Largest Con In Corporate History". They accuse Adani of "brazen stock manipulation and accounting fraud schemes over the course of decades". Now for our readers who do not know what brazen stock manipulation means, it basically refers to illegal activities aimed at artificially inflating or deflating the price of a stock. This type of manipulation is accomplished through a variety of means, including false and misleading statements, insider trading, market manipulation, and other fraudulent activities.
Why did Hindenburg Research accuse Adani Group of such allegations? You ask well, simply because this investment firm has this reputation for sniffing out unnoticed problems in publicly traded companies and makes money by publicizing those problems and then short-selling the company's shares. Short sellers are those who bet against companies unlike others and borrow the company's share and then sell these shares in hopes that the prices fall so that they can buy these shares again at reduced prices and return them to the person/institution they borrowed it from. In doing so they end up pocketing the difference when they sell the shares at high prices and buy the same shares at lower prices
They did the same with the shares of the Adani Group and were quite transparent about it too. Investors after the publishing of the report were bailing on Adani shares and due to this, there was a sharp fall of 55% in the price of their shares. Due to this Adani also had to return all the money taken from investors and call off its 20,000 crore Rs deal of Further Public Offering(FPO).
An FPO is a process wherein a company that is already publicly listed in the stock market issues additional shares to investors.
In Hindenburg's defence, they have always stated that their information is always legitimate and short selling a dodgy company's share does no harm. Well, on the contrary, this harmed many Indian investors and the Adani Group as it lost tremendous amounts of money, about 110 billion USD. This made the Adani group not only deny but also criticized Hindenberg's actions, but all of this was in vain as the damage had already been done. SEBI has started its investigations and will soon take necessary actions as well. In all of this Hindenburg made money and Adani lost his credibility.
What happens next? Well, this was not what the Indian economy wanted as it is always under cut-throat competition with other developing nations like Vietnam who are looking for foreign investment. Companies like Reliance and Tata who have greater credibility have stepped in to fill Adani's void. Adani now is in great debt and will have a lot of issues in repaying its loan but the RBI gave a statement where they state that Adani Group was not exposed to a lot of banks and hence the damage would not be big. This is a learning opportunity for Indians and Indian policy makers as now they can invest wisely and re-formulate their financial plans in the corporate sector and make a greater comeback in the market.
Well written