Opinion The rout in Adani Group shares after a short-seller report calls for more scrutiny and transparency

Following the sharp sell-off on Wednesday, shares of all listed Adani Group companies came under acute pressure on Friday as well. At the close of markets, Adani Enterprises, the flagship entity of the group, was down around 18 per cent. Adani Transmission has fallen 20 per cent, as have Adani Total Gas and Adani Green Energy. Adani Ports was down 16 per cent, while Adani Power and Adani Wilmar were down 5 per cent each. This souring of investor sentiment is being traced to the release of a report by Hindenburg Research, a New York-based investor research firm, which has raised several questions and concerns that range from the group’s high debt levels and negative cash flows to the use of shell companies based in tax havens such as Mauritius. The report has accused the Adani group of engaging in “brazen stock manipulation and accounting fraud scheme over the course of decades”.

In its response, the Adani Group has called the report a “malicious combination of selective misinformation and stale, baseless and discredited allegations.” It says that the “timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming FPO from Adani Enterprises”. The timing does raise questions, the report was released just two days before Adani Enterprises’ follow-on public offer was to open for subscription. The research firm also disclosed that it has “taken a short position in Adani Group Companies through US traded bonds and non-Indian traded derivative instruments.” But notwithstanding the Hindenburg report and the Adani Group’s response to it, concerns have been flagged in the past as well. CreditSights, a Fitch Group unit, had previously called the conglomerate “deeply leveraged”. While following a conversation with the management, it claimed to have discovered some calculation errors, even as it did not change its investment recommendations.

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A report in this paper had pointed out that even as private mutual funds have shied away from investing in the group’s firms, Life Insurance Corporation had been steadily increasing its shareholding in its companies, principally Adani Enterprises, Adani Total Gas, Adani Green Energy, Adani Transmission and Adani Ports. LIC’s investment in the Adani group of companies was more than five times the value of the holdings of all equity mutual funds. Questions have also been raised about the group’s shareholding pattern.

The sheer size of the Adani Group — it has interests across large swathes of the Indian economy — and the implications for the larger financial system, call for far greater scrutiny and transparency than what has been on display. The interests of the average Indian investor need to be protected, and the sanctity of capital markets must be maintained. The sell-off may have put a cloud over the firm’s secondary share sale but how the Adani Group responds to the market — and addresses the concerns raised — has ramifications that go beyond just its own boardroom. The regulator, too, has its task cut out.