12 firms benefitted from short-selling Adani Group shares, ED tells Sebi: Report

Based on preliminary investigations, the ED has concluded that it is likely that the FPIs and FIIs are not the 'end beneficiaries' of the short selling against Adani firms, but are 'acting as brokers for bigger players located overseas'.

A dozen firms, including foreign portfolio investors and foreign institutional investors (FPIs/ FIIs) operating out of tax havens, benefitted from short selling shares of Adani Group companies, The Indian Express reported on Tuesday.

The publication cited an investigation by the Enforcement Directorate (ED), which reportedly informed the Securities and Exchange Board of India (Sebi) in July that some of these short sellers took positions only a couple of days before the Hindenburg Research report alleging widespread stock manipulation in Adani Group firms was published.

Short selling is a trading strategy where traders speculate on the decline of a firm's stock or other listed security. Short sellers profit if the value of the asset falls. SEBI allows regulated short selling, submitting in a written note before the Supreme Court earlier this year that "Short selling is considered by some to be a desirable and an essential feature of the securities market, as it provides liquidity and also helps price corrections in overvalued stocks".

Sources told The Indian Express that three of the 12 firms are India-based (one of them is the Indian branch of a foreign bank); four are based out of Mauritius and one each out of France, Hong Kong, Cayman Islands, Ireland and London - and that none of these FPIs/ FIIs have disclosed their ownership structures before Income Tax authorities.

The publication also reported that these firms are under the scanner for suspicious business activity. For instance, one of them claimed an income of Rs 1,100 crore on a turnover of Rs 31,000 crore in a period of six months, although it reported no business whatsoever for over a year after it was established in July of 2020. Another Cayman Islands-based FPI bet against Adani Group firms' stocks on January 20, and enhanced its short position three days later. The next day, on January 24, the Hindenburg Research report was published.

Two of the short sellers are registered in India - one in New Delhi, and the other in Mumbai. Sebi had earlier passed an order for misleading investors and stock market manipulation against the promoter of the Delhi-based firm, the publication reported.

Based on the preliminary investigations, the ED has concluded that it is likely that the FPIs and FIIs are not the “end beneficiaries” of the short selling against Adani firms, but are "acting as brokers for bigger players located overseas".

Last Friday, Sebi told the Supreme Court that out of 24 investigations into the Adani-Hindenburg issue, 22 are final in nature and two are interim at this stage, awaiting response from external agencies or entities. The status report further said the interim probes have covered 13 overseas entities of Adani Group companies and that details have been sought from five countries on the foreign portfolio investors.