Adani-Hindenburg saga: Over 12 entities involved in short-selling under Sebi lens

More than a dozen entities, both domestic and foreign, had come under the regulatory glare over alleged short-selling before and after the publication of the Hindenburg research report against Adani Group, two people familiar with the development said.

The Securities and Exchange Board of India (Sebi), which is examining the rise in stock values of Adani Group in the past few years, is also scrutinising the trade data and trade pattern of these entities allegedly involved in short-selling and made significant profit.

Enquiries in the trade pattern of these entities reflected a profit of over Rs 30,000 crore, pre- and post-Hindenburg saga, said one of the two people.

He said the regulator was checking entities’ fund source, regulatory disclosures, and whether there were any violations in securities laws.

Sebi did not respond to a Business Standard email for comment.

Seven listed Adani Group companies have lost about $135 billion in value since the Hindenburg report surfaced despite the group denying any wrongdoing.

Adani Group stocks were already under pressure since December.

Many thought that it was due to weakness in the global bond market.

“Sebi is examining whether the entities under the scanner had a whiff of the Hindenburg report,” the people cited above indicated.

When bond markets are under pressure, stocks of companies with high debt exposure tend to take a hit, especially if they are in the Futures and options segment.

In regulatory terms, short-selling usually involves investors borrowing shares and selling them, expecting to buy them back later at a lower price before returning them to the lenders.

They make profits on the difference between the higher sale price initially and the lower purchase price subsequently.

In India, naked short-selling, which involves selling shares without first borrowing them, is not permitted.

Such positions are possible in some developed markets.

In case of institutional investors, they have to disclose their short positions upfront under the securities laws.

The regulatory compliances are rigorous for foreign investors as well.

Other than allegations against the Adani group for improperly using offshore tax havens and manipulating stocks, the regulator is also investigating lapses related to public shareholding norms or regulatory disclosures.

This is following the Supreme Court’s direction to the regulator asking to check whether there has been a failure to disclose transactions with related parties, any manipulation of stock prices, and whether public shareholding rules have been violated.

The top court was hearing two petitions relating to Adani group share crash and market impact.

The SC has also formed an expert committee headed by a former judge to investigate any regulatory failure leading to investor losses after the Hindenburg report.

During the hearing, Sebi had filed an affidavit batting for short-selling, saying that it is considered by some to be a desirable and an essential feature of the securities market, as it provides liquidity and also helps price corrections in overvalued stocks.

Securities market regulators in most countries, particularly in all developed securities markets, recognise short-selling as a legitimate investment activity.

“Thus, in all major jurisdictions, instead of prohibiting short sales per se, the regulators have permitted it to take place within a regulated framework,” Sebi had said.