Adani vs Hindenburg: A thorough probe is needed

The sharp fall in stock market indices on Wednesday and Friday in the wake of the release of a report by Hindenburg Research, a New York-based investor research firm, highlights the systemic risks in the financial markets and their vulnerability. The report, which was critical of the Adani Group, brought down not only the shares of that group’s companies but the entire market.

In two days, the market lost about 3 per cent of its value, with the report being the key reason for that. While all Adani Group shares crashed, the shares of companies like LIC and the SBI, which have high exposure to them, were also hit. The impact of the report will not be limited to the stock market but to all the sectors where Adani companies are active.

Hindenburg Research has alleged that the Adani Group had engaged in “brazen stock manipulation and accounting fraud” and had made improper use of offshore tax havens like Mauritius and the Caribbean islands through shell companies. It also said that key listed Adani companies had “substantial debt”, which put the entire group on a “precarious financial footing.”

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The Adani Group has called the report a “malicious combination of selective misinformation and stale, baseless and discredited allegations.” It also said that its timing showed “mala fide intention” to damage the company’s ongoing FPO (Follow-on Public Offer). The timing would hurt the FPO, but that cannot be used to judge the report as such. Hindenburg has disclosed that it has taken short positions on the company’s shares. This is not the first time concerns have been raised about the Adani firms. CreditSights, a noted financial research firm, had said the conglomerate is “deeply leveraged”.

Private mutual funds have kept away from the Adani Group while companies like the LIC and SBI’s arms, which are influenced by the government, are deeply invested in it. Even when the Adani shares were crashing, LIC increased its investments in it.

There is the need for a serious probe into Hindenburg’s charges. An independent probe should bring out the merit or otherwise of the charges. The Adani Group’s promoter family is considered to be close to Prime Minister Narendra Modi and it is often said that their meteoric rise in the past few years is due to that connection, but that should not influence the investigation.

A lot of investors’ money and public funds in institutions like the LIC and SBI are involved. These institutions must not be used to bail out the Adani Group in any way. The business ethics, corporate practices and governance of a big conglomerate are involved. How the government and investigation agencies conduct themselves in this matter will have a major bearing on the country’s image.