Sebi is already probing the allegations made by US-based short seller Hindenburg Research against the Adani Group and the market activity before and after the publication of the report, the market regulator told the Supreme Court on Monday. During a hearing by the apex court on volatility in Adani stocks, Sebi (Securities and Exchange Board of India) said the matter was in the early stages of examination, so it may not be appropriate to list details about the ongoing proceedings at this stage.
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The Hindenburg report, which accused the group of stock manipulation and fraud by using a wave of shell firms, caused a massive rout in the shares of Adani Group companies, wiping off billions of dollars of investors. A PIL was moved in the Supreme Court, seeking a probe into the charges against Adani. Last week, the top court asked the market regulator to respond on measures that can be taken to protect Indian investors.
Today, Sebi said Hindenburg is a short seller research company among other such companies in the US that do research on companies that they believe have governance and/or financial issues. "Their strategy is to take a short position in the bonds/shares of such companies at the prevailing prices, (i.e., sell the bonds/shares without actually holding them) and then publish their reports," the regulator told the SC.
Sebi further said that the more the market believes their reports and the more that “stop loss limits” get triggered, the more the prices of the bonds/shares fall and the more money they make.
Commenting on the likely impact of the fall in Adani stocks on the Indian market, Sebi said while the shares of the troubled group have seen a significant decline in prices on account of selling pressure, the wider market has shown full resilience. The combined weight of the group companies in Sensex is zero and in Nifty is below 1 per cent, the regulator said.
Sebi said the Indian markets have seen far higher turbulent times in the past, especially during the Covid pandemic, when Nifty fell by around 26 per cent during the period of March 02, 2020, till March 19, 2020 (13 trading days).
"Even during such turbulent times, Sebi did not resort to banning short selling, even though there were demands for banning it," the regulator said, adding that the markets continued to function in a robust manner, recovering far faster than other global markets. "Investor wealth (market capitalization of all listed companies) which was around Rs 145 lakh crore in Feb 2020 has almost doubled to about Rs 270 lakh crore now."
Further, Sebi said overall market volatility in India was on par or lower than that in major developed markets. "There is no significant impact at a market-wide level or at a system-wide level, that might warrant a system-level review of the regulatory frameworks in operation," it added.
The regulator further said that when there was a significant rise in share prices of Adani Group companies, its ASM (Additional Surveillance Measure) framework, which is designed to control excessive volatility in stocks - both price increase and price decrease - was triggered on numerous occasions for long periods of time. The ASM, it said, acted and served as advice to investors in terms of the higher level of risk related to the higher level of volatility in those shares.
Meanwhile, the Adani Group today said that the balance sheet of each of its companies was "very healthy" and that it has strong corporate governance and secure assets. A group spokesperson said that Gautam Adani-led conglomerate has industry-leading development capabilities, strong corporate governance, secure assets, strong cashflows, and its "business plan is fully funded."