The Hindenburg orchestra on Adani: Will doomsayers finally face the music? | Mint

The Hindenburg orchestra on Adani: Will doomsayers finally face the music?

Repeated negative statements caused panic and induced many ordinary investors to sell their Adani shares out of fear, although they were never the intended target. (Bloomberg)
Repeated negative statements caused panic and induced many ordinary investors to sell their Adani shares out of fear, although they were never the intended target. (Bloomberg)

Summary

  • The fallout on citizens of this report’s scandalous treatment as gospel truth should make us think hard about what’s in the public interest.

One year after the Hindenburg Report on Adani, let’s take stock of its impact. A broad view suggests the business group is unaffected, as almost all its shares are nearly back to their pre-report prices, indicating that the drop was a knee-jerk reaction. Last year’s reaction was not purely on account of the report’s revelations. Money was made overseas by gaming our market. A target was easily found by identifying vulnerability, or how hard a hit one could cause. However, business wise, Adani was not vulnerable, since almost all firms were performers; hence a trigger was missing. What was needed to hurt its shares were voices that gave the report the status of gospel truth. In times of political allegations and counter-allegations of crony capitalism, the Adani Group became the choice for a killing to be made by short-selling, given its stocks’ potential downside.

In normal course, such a report would not have made much impact, as analysts would have concluded that the report had nothing new; it chronicled a one-sided negative narrative as old as a decade. So an orchestra was needed that was readily available in the political opposition looking for ammunition against the government. The timing was perfect, given the Adani public offer in the budget run-up, but the orchestra created cacophony. It did not hurt the government, but the wrong target: our people. Investors lost because markets fell, Life Insurance Corporation (LIC) policyholders and State Bank of India (SBI) depositors got worried as they heard rumours of their insurer losing large sums of money and their bank on the brink, even of Adani “running away." Job opportunities were lost as Adani had to shelve its public offer, slow down its investments and return to the drawing board for new projects as its joint-venture partners got jittery.

There was more to come. Public interest litigations (PILs), typically the privilege of a few activists, were filed and valuable Supreme Court (SC) time was spent on the case. The Securities and Exchange Board of India (Sebi) was ordered to probe the matter and a panel of eminent persons was set up that ran into a needless controversy.

What came of it? Having suffered for almost a year, Adani has recouped much of its lost market value, but that’s no comfort for retail investors who lost. While the apex court has asked Sebi to work towards ensuring such events do not cause losses, which seems almost impossible, it has left unanswered questions. Who will compensate investors? Is there no accountability for making irresponsible damaging statements? Are PILs the prerogative of a few?

We should examine if Sebi’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets (PFUTP) Regulations may apply. “Dealing in securities covers such acts which may be knowingly designed to influence the decision of investors in securities," says this regulatory code. Further: “Fraud includes a false statement made without reasonable ground for believing it to be true, in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain."

That the report lacked substance was known, as most cases cited had been settled long back, including a few by the SC itself. Orchestral noise, however, did damage, as statements against SBI, LIC and Adani that were either false or without reasonable grounds were echoed, even as critics ignored the voices of the SBI chief, LIC leadership and government officials, among others. That Indian authorities were relied upon less by critics than a little known entity points to an agenda. Repeated negative statements caused panic and induced many ordinary investors to sell their Adani shares out of fear, although they were never the intended target.

A class action case could be launched by investors who lost out against those who took the report as gospel truth, which the SC cautioned again, and used it as ammunition. An ambitious lawyer who wishes to help can take up this challenge and file such a suit. Further, recourse could be sought to PFUTP Regulations, and in case these cannot be applied, then there may be a case for amendments to be made.

Even if investors who sold off their holdings in fear can be compensated, what about those who did not pay their LIC premiums fearing that India’s top insurance company will go bust? And then there are also job aspirants who lost opportunities because Adani cooled off on the group’s business expansion.

Despite all-round development, we are still a society where the destiny of the poor depends to a significant extent on what powerful people decide. Yet, we have not been able to institutionalize accountability of the level a country like ours requires.

A nebulous group that calls itself ‘civil society’ seems to move a large number of PILs and other legal petitions. It is unclear why this is so, as there is no legal provision under which they have rights that are superior to those of other citizens. There is therefore an urgent need to relook at the PIL route, which seems to end up as a channel to settle scores and gain media limelight. The SC could study PILs filed and how many really served the public interest. Also, how many PILs failed and who their most prolific filers are.

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