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Hindenburg is no holy cow

It has to be understood that Hindenburg Research is a commercial firm whose business is 'short selling'. — Dr. Ashwani Mahajan

 

A firm named Hindenburg Research has made some serious allegations against the Adani group in its recent report, including allegations of fraud and unduly influencing of share prices. After that there has been a huge fall in the shares of Adani group companies. It is being said that due to the fall in shares caused by this report, Gautam Adani's net worth has decreased by $ 30 billion i.e. Rs 2.5 lakh crore. Not only this, total valuation of the Adani group, has suffered a loss of more than 65 billion dollars i.e. more than Rs 5 lakh crore so far.

Significantly, after Narendra Modi government, the companies of the Gautam Adani group have expanded rapidly. It has also been alleged by the opposition parties that the government has been extraordinarily been kind to Adani. After the report of Hindenburg Research, opposition parties have also sharpened their attack on Adani Group and the government.

It is not possible to comment on the veracity of the Hindenburg report, but since the Hindenburg report has come only about the Adani group, it is only the Adani group that is being held accountable for misreporting or frauds. Can the allegations leveled against the Adani group be applied on other corporate groups as well?

What is Hindenburg Research and their allegations

Hindenburg Research is a forensic financial research firm founded by Nathan Anderson that analyzes equities, credits and derivatives. It is being said that earlier it has exposed the mistakes and frauds of 16 companies. Including disclosures about electric truck company Nikola Corporation and Twitter, in the context of its acquisition drama of Twitter by Elon Musk. That is, the disclosure about the Adani group by Hindenburg Research is not the first such act of Hindenburg.

It has to be understood that Hindenburg Research is a commercial firm whose business is 'short selling'. In stock market terminology, 'short selling' refers to a deal, when a firm or individual sells more shares than the shares in its possession. In such a situation, at the time of settlement of the deal, the 'short seller' has to settle according to the price prevailing at that time, or extend it further through derivatives. The seller selling more shares than he holds (i.e. short selling) naturally operates on the assumption that the share price will be lower in the future and that the short seller will benefit by selling the shares at a higher price earlier. That is, it cannot be ruled out that Hindenburg Research, whose interests are linked to the decline in the prices of shares of companies, is also linked with the objective of making money through such so-called disclosures. That is, it becomes a case of 'conflict of interest'.

It may be interesting to note that same Hindenburg was restricted by Tis Hazari court in Delhi by withdrawing tweets by them in July 2022 on application by Ebix, a company in which Hindenburg Research held a short position. Ebix also managed to restrict Google search results pointing to the Ebix report.

What is the business of Adani?

Adani has become the country's fastest growing conglomerate with diverse businesses including world-class infrastructure and other logistics, mining, metals, energy etc.. Adani's companies include companies like Adani Ports and SEZs, Adani Power, Adani Transmission, Adani Enterprises, Adani Total Gas and Adani Wilmark. If we talk about Adani Airports, many airports including Mumbai, Ahmedabad, Lucknow, Bengaluru, Jaipur, Guwahati, Thiruvananthapuram are being developed and operated by Adani Group. Adani Green Energy manufactures solar panels and other equipment in large quantities. Due to this, country's dependence on other countries including China has started decreasing. Several ports and Special Economic Zones are being constructed and operated by Adani Ports and SEZs. Recently, a big effort has been made by the Government of India aimed at self-reliance in semiconductor technology and the government has announced incentives of Rs 60 thousand crore, linked with the production of semiconductors. Under the same, it is believed that soon the semiconductors made by Adani Group will hit the markets. That is, if seen, all the companies of Adani Group are creating real assets in the field of manufacturing and infrastructure in the country.

Can the country be harmed?

Some people believe that defamation of the Adani group by Hindenburg, and the huge fall in the stock market because of the same, may dent the reputation not only of the Adani group but of the entire country and alienate foreign investors from India. But it has to be understood that the report of an agency with conflict of interest should be read with a pinch of salt. India is currently the center of attraction for investors from all over the world. Due to India's huge market; world's highest growth rate; progress in various sectors; effective policies of Government of India in the manufacturing sector, foreign direct investment is increasing in the country. Today, the country has political stability with a pro-development government; and progress in every field, thanks to a pro business environment. Democracy and strong legal system are main reasons for this attraction towards India. Therefore, to assume that India's investment climate can be vitiated by reports of an agency with a conflict of interest, targeting a company would be incorrect.

Asset creation vs cash burning

There are two types of business models running in the country and the world today. One is the conventional model of asset creation, in which production units, infrastructure and various types of logistics are built and through that production capacity and GDP are increased. This model of business has been adopted by Adani Group. Due to this, self-reliance is increasing in various sectors in the country. On the other hand another model of business is also in operation, which is called ‘cash burning model’. In this, consumer markets are expanded through various types of discounts by burning cash, and on the basis of that the valuation of the firm is increased for attracting investors and taking investment from them. Many companies from all over globe and India like Amazon, Paytm, Zomato, Nykaa, Flipkart in India have been growing riding on ‘cash burning’. Recently many of these cash burning companies mobilised money from Indian investors by issuing IPO through 'SEBI'. Most of these investors have lost 40 to 70 percent of their money, so far.

It has to be understood that when many rich people of India, thinking that living in India is not gainful, tied up their assets and migrated to foreign countries; however, some rich people decided to stay back in India and expanded their businesses at varying pace. Be it Ambani, Adani, Tata, Mahindra, Birla group companies, ITC, L&T and many others; these groups and companies have worked hard to take India's growth journey forward. Certainly these companies are better than cash burning businesses. In such a situation, these companies have to be saved from the attacks on Indian enterprises by foreign agencies. If any kind of mistake is made by these companies, then it will also be necessary to correct, under India’s legal framework.

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