HINDENBURG’S ECONOMIC NARRATIVE: A WORRY FOR ADANI GROUP AND SEBI

After 18 months, a tweet and another call out by the New York-based firm Hindenburg Research have drawn attention to Adani and SEBI, established in 1992 with the objective of protecting investors’ interests in the securities market.

Gautam Adani, one of Asia’s and the world’s richest men with a market in green energy, edibles, ports, and transport, has been under scrutiny by the Securities and Exchange Board of India.

Elements of the report

The charges include using Bermuda and Mauritius-based shell companies and tax havens to siphon money, overvaluing its assets, and using its own shares as collateral to raise loans. Adani Group has used India Infoline, a wealth management firm with ties to wire card scams, in its dealings.

 The Hindenburg reported:

 We noted that “the trading patterns [of these funds] suggest that the stock parking entities and the suspicious offshore entities may have artificially inflated the volume and/or price of some Adani listed companies.”

Here is the link to the report.

Allegations on SEBI

Conflict of interest:  SEBI chief Madhuri Buch and Dhaval Buch, her husband have held 99% shares in Agora Consultancy and the position of senior advisor at Blackstone, respectively. Blackstone is a major sponsor of REITs (Real Estate Investment Trusts) in India. During Dhaval’s role in Blackstone, REITs underwent major changes, brought about by SEBI.

Media and Political Economy

Economic narratives hurt business, irrespective of truth and falsehood. Let us go through the views of A. C. Pigou about causes of changes in the economy. It includes-

 Hard causes like revolution, inventions are responsible for up to 25%,

 Psychological like narratives (Adani Group and Hindenburg) up to 50%

 Monetary changes in banking policy are responsible for 35%.

How long do narratives last?

They can spread fast and slowly, depending on repetition. Take, for example, sex, gender, family, and government as ever-lasting narratives. Beggar my neighbor was a card game changed to a trade policy of “beggar thy neighbor“. Economic narratives are repeated to lower the forgetting rate. Economic narratives rely on emotions such as visuals, patriotism, and identity (Adani, Madhuri Buch, Greta Thunberg). The behavior of one individual influences others, or what is being displayed in the time, conditions the brain of an individual. The media has a crucial role to play in economics. Surges in law school applications influenced by shows like LA Law and Legally Blonde are an example.

What future do we foresee?

SEBI’s credibility is under question, even if the accusations prove untrue. Such is how narratives work. Adani, a business, having seen the same last year, will find be easier to bounce bank, provided the reports are false. If proven, both the organization and the business group are inviting a loss of customer trust in them.

Sudden pulling of shares reduces the business rating of bonds, thus downplaying the investment atmosphere of the country. Such a loss at a time when the country is gearing up for major political amendments and a geopolitical crisis might take a toll unless managed efficiently and with transparency. Whether the accusations are true or not, the timing is sensitive. The occurrences in Bangladesh and USA elections and now the release of reports reduce its credibility. Nevertheless, India awaits the truth.