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Market Pulse
Monday, February 6, 2023

Short Sellers: Kicking a hornet's nest

Short sellers make money when stock prices fall and they are always on the lookout for overvalued companies or signs of impropriety. A previous high profile accounting scandal surrounding the German payments processor, Wirecard, was the subject of an in-depth research report by a group of short-sellers. Recently we had another such research report by a group of short-sellers. This one unleashed a $100bn shockwave.

Hindenburg Research, a US based activist investor, wrote a scathing report, in which they allege the India-based Adani Group has been involved in share price manipulation and accounting fraud. Hindenburg Research is so confident in their research that they invited the Adani Group to sue if their report was factually inaccurate[1].

The Adani Group was founded in 1988 by Gautam Adani, one of the world's richest men. They have interests in many segments of the Indian economy including ports, power generation, airports, mining and renewable power[2]

Since the release of the report the valuations of many of the listed Adani Group companies have collapsed. So far, more than $100bn in value have been wiped out from Adani Group companies. Gautam Adani’s wealth has also taken a hammering. He was once the second richest man in the world. Now he ranks at #21[3]

The allegations have kicked off a political firestorm in India. Opposition parties are demanding an investigation into the Adani Group that has long been perceived to have close ties to the current Prime Minister, Narendra Modi[4].

The Adani Group has denied any wrongdoing. They called the allegations malicious and nothing short of an “attack on India”. They responded to the allegations in a 413 page report but the lack of a meaningful rebound in share prices suggest this did little to assuage investor fears[5]

Before the Hindenburg report was made public, the Adani Group had plans to raise as much as $2.4bn in the equity market. Extreme volatility and uncertainty after the release of the report forced them to cancel not just the equity offering but also Adani Enterprise’s first bond issuance[6]

India’s population is expected to overtake that of China at some point in 2023 and India is seen by many as an exciting long-term investment opportunity. The allegations of crony capitalism, true or not, are unlikely to boost investor confidence in India[7]

So far the Indian government has been quiet but protests are breaking out and a few people have been arrested[8].We don’t know what the final outcome for the Adani Group might be but we are paying close attention to any significant developments and monitoring any knock-on effects. 


[1] https://www.theguardian.com/business/2023/jan/27/hindenburg-research-dares-adani-group-to-sue

[2] https://en.wikipedia.org/wiki/Adani_Group#:~:text=Adani%20Group%20is%20an%20Indian,the%20flagship%20company%20Adani%20Enterprises.

[3] https://www.bbc.co.uk/news/world-asia-india-64494466

[4] https://www.ft.com/content/9840aa4e-3270-4f3b-abe4-3f6838a542d0

[5] https://www.bloomberg.com/news/articles/2023-01-29/adani-says-hindenburg-conduct-is-calculated-securities-fraud

[6] https://www.theguardian.com/business/2023/feb/02/adani-group-abandons-share-offer-as-crisis-triggered-by-claims-escalates

[7] https://www.bloomberg.com/news/features/2023-02-03/adani-group-s-100-billion-crisis-shakes-investor-faith-in-india-stock-market

[8] https://www.dawn.com/news/1735643/adani-sell-off-extends-indias-opposition-lawmakers-launch-protests

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