Hindenburg-Adani Saga: Lessons To Be Learnt

The Hindenburg-Adani row has been another vital filler for the politicians and media for the last few months in India.

Hindenburg Research, a U.S.-based short seller, accused Adani Group of manipulation and financial fraud. Adani Group, with significant interests in infrastructure (roads, ports and airports), energy, mining, logistics and agri business has, over the years, made a meaningful contribution to India’s growth story and any attempt to derail the conglomerate will have severe repercussions on the country’s economy. 

The group’s seven airports handle 23% of India’s passenger traffic and 40% of air cargo. Adani ports manage about 30% of the country’s international sea freight. Its cement business accounts for 17% of India’s total cement production. Thirty per cent of India’s grain is stored in the group’s warehouses. Besides being India’s biggest private generator of electricity from fossil-fuel plants, the conglomerate is also betting on renewables. Adani has committed to invest $70bn by 2030 on green investments—in line with the government’s plan to make India a green superpower. According to the Centre for Monitoring Indian Economy, Adani group accounts for 7% of the capital spending of India’s 500 biggest listed firms. 

Further, the group has pioneered boldly into new industries where others have feared to tread. In spite of such projects requiring huge capital investment, having longer gestation and pay-back periods, and low margins – Adani has taken up the challenge. Centre for Monitoring Indian Economy estimates that the group accounted for 10% of the new projects announced during the FY 2021-22. 

The group’s impressive rise has been due to its ability to get things done – and not to crony capitalism. Take, for example, the new airport being constructed in Mumbai. No one wanted to touch the project since 1997 – when the plan was first made. Adani took over the $2.1 billion project in 2021 and work began immediately at a brisk pace. The new airport is expected to be operational by 2025.  

It is the Adani group’s commitment to partner the government in its nation-building efforts, its perseverance to accomplish goals and setting high standards for the industry that has moved the central and state governments to ease administrative approvals or offer subsidies for the group’s business initiatives. The group is so firmly entrenched in the Indian economy that any attempt by politicians or foreign actors to demolish it will harm the country’s development interests.

The Centre and the SEBI had reassured that they have no objection to the conduct of inquiry by the Supreme Court constituted committee to examine the regulatory regime and framework in the securities market to protect shareholder interests. The committee formed by the Supreme Court to examine the Hindenburg allegations did not find evidence of any circular trading or price manipulation by the Adani group.

This episode highlights two key aspects worth noting. One is the resilience shown by the Indian stock market. At the time when the report was released, Adani Group’s shares had seen a significant decline on account of selling pressure on their shares. Despite the decline in the price of shares of such a significant group, the wider market bore no substantial impact. This indicated a strong shareholder belief in the legitimacy and conduct of equity trading in our country under the SEBI vigil.

The other aspect worth noting was the application of the concept of a "Catalyst" in the field of finance. According to this theory, there has to be a market or a corporate event (so-called catalyst) that will cause the market to re-evaluate the company's prospects and price convergence to the true value of the share. Before the Hindenburg report release the prices of Adani shares were at an unsustainable high. The Hindenburg report played the role of a catalyst, bringing down the prices to the estimated true value of the stock. Now, the Adani stocks will rise at a normal growth rate - and on a sustainable basis.

All’s well that ends well. 

Author: Sahib Kaul