Adani Versus the Hindenburg Versus National Interest

Why do we need an equity market? Reason is very simple; we need investment in Indian business and market to grow our economy. Equity market or share market is the essential element of free market which is required to generate wealth for investors and investment for business enterprises. Without free market we just cannot generate enough wealth to meet our welfare and security requirement. As nation grows wealth and prosperity, it needs security of those assets otherwise you will find lot many foreign invaders toloot that. We have enough experience of that, now. Share market is an asset and it has to be protected.

 

 

Business, market and share market, each one is required to be protected from unnecessary threats and simultaneously they have to be regulated from inside through govt agencies. Till now, if you go through the history of scandals in Indian share market, domestic manipulators have made an effort to damage it i.e., Ketan Parikh or Harshad Mehta by manipulating the share market. However, they did the favour to Indian regulators by pointing out the loopholes in Indian equity market. SEBI, RBI and other agencies have more teeth now than they had before.

 

No system can be perfect and it is always work in progress. Let us assume that USA has the best regulatory system but even than it had sub prime crisis or even Rajat Gupta was convicted in insider trading case. Convictions alone can not point out how much is the malaise in the system.

 

Let us come to Adani versus Hindenburg case. Indian economy is more globalised than before. Most of the top Indian business houses borrow money from global market for the simple reason that rate of interest is less and when big amounts have to be borrowed, even point difference in landing rates make colossal difference in absolute terms. So, what Hindenburg report has done, it has made borrowing difficult for Adani and lending rates will further go up for them. Why Hindenburg could do it because all those Indians who invested in Indian equity market do not know about Hindenburg but believes in its report which most of them have not seen but heard the interpretation on media through experts and concluded that there must be some thing wrong with Adani because there can not be any smoke without fire, it’s a US company and should be believed and thirdly it’s a normal human psychology that Indians believe the negative news till it proves otherwise. Now that is very tricky, till it proves otherwise and who is going to prove it? How many checked it that Hindenburg is into short selling and makes money by bringing the share price of the targeted company down so can anyone know how much money Hindenburg has made through bringing down the price of Adani shares. It will be in billions of dollars prima facie. Two facts have come out of it, other Indian companies are also vulnerable, more so when they are into expansion mode and have to pick up capital from foreign markets. Secondly it gives an idea to Indian analysts also they can benefit by short selling too; it is possible to make money provided Indian retail investors believe you and it is possible to manipulate their share buying and selling behaviour. It was happening before also but now Hindenburg may become role model for some, to play the game at higher level. There is one catch into this, Hindenburg is not operating in Indian market directly so it is legally protected. However, Indian short sellers may have to face Indian legal system, which will deter some of them but not all of them.

 

Why it is so? Reason is very simple; we tend to believe foreign reports and not Indian reports or Indian institutions. Our WhatsApp universities with half cooked information, less knowledge and dopamine induced behaviour will ensure that we jump to any negative information and that can make us vulnerable for any knee jerk reaction and by the time real information comes, damage is done. Hindenburg and its Indian cronies has already made the kill and damaged Indian equity market for minimum three months. More Hindenburg are in wait and waiting for next budget or next FPO of some big company either as a lone wolf to make a kill or in alignment with tool kit with other players on international horizons who does not like Indian equity market to grow.

 

When the time will come that we will have more faith in Indian institutions than small players like Hindenburg? When the time will come that we ask the question, how much money Hindenburg has made by negative reports about Adani Business and bringing down its share price? When Indian companies will be able to persecute these foreign entities in India? Indian companies are reporting to Indian Regulating agencies and it is their responsibility and accountability to protect the Indian equity market.

 

It is not my case that Indian business houses need no regulation but regulation should not become a substitute of license raj in different form. M Damodaran in interview to Karan Thapar said that our regulating standards are at par with the best in the global business. If that be the case, why Indian retail investor should be on selling spree of Adani Shares. He should make money and not some one like Hindenburg who has no interest in Indian growth story and may be that he is working as part of tool kit, timing of this report makes it so obvious.

 

While SEBI and other agencies are showing trust in their own system, none of them have over reacted to the Hindenburg report and left it to market to decide about the price of Adani Shares. Indian retail investor specially those who do not know about market behaviour is jerky. They are most vulnerable and may incur losses by selling at lower price. While all those who are clued up in the market are picking up Adani Shares at low prices. Let the market decide the price and let the open competitive market decide the fate of any company. Hindenburg or no Hindenburg, let we have our faith in our share market and our institutions to regulate it fairly.

 

Now, I come to Indian borrowing? Why should we borrow from outside? Let us not fool ourselves that economic factors will not work. Businessmen will always look for loans with least lending rates. However, as Uday Kotak, Chairman of Kotak Mahindra Bank says that there is a requirement to strengthen Indian under writing and capacity building so that our vulnerabilities come down.

 

I come to the opposition parties now, please note that Indian economy is Indian business and not BJP business. Just because Adani is conveniently aligned by opposition parties with Modi, does not mean that we do not require Ambani and Adani, we need at least 10000 in that category to develop $10 Trillion economy. Adani is operating in opposition ruled states as well. Secondly, just because share market is showing volatility, one does not require JPC which is more a political forum. Time to get wise and India friendly. Getting rich is no crime. It is time to shed crab mentality.