Adani-Hindenburg issue: 'Regulatory tools can lead to better corporate governance,' says FM Sitharaman

Recent developments in the financial landscape, including the Hindenburg report on the Adani Group and the impending release of another report, have spurred discussions about activist short-selling and its impact. Finance Minister Nirmala Sitharaman delved into the intricacies of this phenomenon in an interview with The Economic Times, shedding light on its dynamics and the potential regulatory responses.

Sitharaman characterised activist short selling as a practice where individuals or entities strategically take positions to manipulate the valuation of a target company. This process often involves lowering the valuation and subsequently driving it up, leading to significant profits for those involved. She noted that these short sellers meticulously analyse corporate entities to assess the feasibility of their strategies, thus assuming calculated risks to achieve substantial gains.

The Finance Minister acknowledged that there are varying approaches to this practice. While some aim to exploit market dynamics for profit, others opt for similar strategies to capitalize on market fluctuations. Amidst these complexities, Sitharaman highlighted the role of the Securities and Exchange Board of India (SEBI) in discerning genuine concerns from manipulative actions. She expressed optimism that effective use of regulatory tools could contribute to enhanced corporate governance, benefiting India's economic landscape.

Sitharaman commented, "What I'm looking at is Sebi, with what it does, is able to see from the grain from the chaff. Regulatory tools, if used properly, coming out of this can lead to better corporate governance. There is no harm if India can also benefit from better corporate governance."

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When asked about the need for a regulatory framework to address activist short-selling, Sitharaman noted that government intervention might not be entirely effective in controlling such practices. She highlighted that activists outside the government might continue their activities regardless of regulations. On the topic of allowing activist short-selling in India, she mentioned that no country explicitly permits it; rather, it is a practice that occurs globally. Sitharaman emphasised that even in well-regulated markets like the United States, unregulated short sellers take risks that are absorbed by the system, allowing it to persist and progress.

While recognising the importance of monitoring market activities in India, Sitharaman advocated for learning from international experiences. She suggested that constructive outcomes could be derived from reports and activities related to activist short-selling, ultimately leading to better corporate governance.

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