Business News/ Opinion / Views/  Adani: Sebi should peer over any wall it runs into

In an era of social media snippets, “clean chit" posts can move markets. In Adani’s case, it was no surprise that group stocks leapt on word that the report of 6 May by an expert panel appointed by India’s Supreme Court to look into their volatility had found no regulatory lapse in the context of three charges levelled by short-seller Hindenburg: that it held its listed firms more closely than allowed by law, it kept related-party deals hidden and it manipulated its stock prices. While these were denied by Adani, in spite of this week’s gains, the group’s market value has contracted sharply since those fingers were pointed this January. The panel report’s let-off was for the Securities and Exchange Board of India (Sebi) in its supervisory role, but it has probably been taken by market participants as a sign of Sebi’s own Adani probe having little to add by the time its findings are due for submission this August. However, both the complexity of this case and dramatic upshoot of Adani share prices—with a few peaking at triple-digit multiples of earnings—in the three odd years preceding the Hindenburg crash warrant a closer look at what the report said.

Whether the violation of a rule is spotted by Sebi depends on what’s under watch. As gleaned from the panel’s report, Sebi had disclosures on the beneficial owners of entities that held the bulk of shares floated by most of Adani’s publicly listed firms (at least a quarter of a firm’s equity pie is our free-float norm), but no rule-defying relationship was detectable. Since investors rather than fund owners might possibly be in control behind a screen, Sebi had even chased the trail of 42 whose money it was aware went in. That hunt predated this year’s volatility, but ran into a maze of opacity. Working it out would be a hard task, it reckons, as there’s too little data to go by. In 2019, Sebi had eased a rule on ultimate asset holders, the very front on which the regulator reportedly “hit a wall." As identities must be unmasked for proof of any secret ownership by promoters, let alone of covert fund flows and direct stock puppetry, that meant no headway could be made at all. By implication, as far as Sebi’s official scanner went, without evidence to the contrary, Adani’s public shareholding was in the hands of people over whom the group had no control. Of course, the group itself has long averred as much. But neither side’s claims have been put to the sort of test that lets any conclusions be drawn. In fact, the report made a note of its own lack of access to potential investigative leads and suggested that pooled sleuth-agency resources be devoted to such cases in general. From this, we can infer some dissatisfaction with the current apparatus.

While the last word on this case seems further off than it did just last week, before 6 May, its political context adds another spin to the upside of Adani stocks. After all, what’s a hot-button poll issue for the Congress—which has pressed for a joint parliamentary probe—is also a hot potato for the same reason, with the opposition party seeking to portray Adani as close to the ruling dispensation. All said, this week’s relief rally reflects a mix of investor perceptions, as every market should for price discovery to do its job. Ironically, this process is at the crux of the stock-market controversy: whether demand and supply were freely at work, blending all facts and forecasts in, when Adani stocks were last zooming up. An answer is important enough to justify Sebi peering over the wall it’s said to have run into.

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Updated: 24 May 2023, 01:27 AM IST
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