“Something Big is About to Happen in India”: Hindenburg’s Warning, Who’s Next After Adani? Research Announcement Raises Tension

American short-selling firm Hindenburg Research has indicated that something significant is about to happen in India. Nearly a year after accusing the Adani Group of money laundering and stock manipulation, Hindenburg Research has made this post on social media.

Through this post, Hindenburg has hinted at some new revelations, although they have not named any specific company.

Allegations of Money Laundering and Stock Manipulation Against Adani Group

On January 24, 2023, Hindenburg Research published a report related to the Adani Group, accusing them of money laundering and stock manipulation. Following the report, the group’s shares experienced a significant decline, although they eventually recovered. 

In response to this report, India’s stock market regulator, the Securities and Exchange Board of India (SEBI), issued a 46-page show-cause notice to Hindenburg.

In a blog post published on July 1, 2024, Hindenburg Research stated that the notice alleges they violated regulations. SEBI also accused Hindenburg of including false statements in their report to mislead readers. In response, Hindenburg leveled several accusations against SEBI itself.

Hindenburg Alleges SEBI Protects Fraudsters

Hindenburg Research has accused the Securities and Exchange Board of India (SEBI) of neglecting its responsibilities, claiming that instead of protecting investors from fraudsters, SEBI appears to be more focused on shielding those who commit fraud.

According to Hindenburg, their discussions with Indian market sources suggest that SEBI’s covert support for Adani began after their January 2023 report was published. They allege that SEBI pressured brokers behind the scenes to close short positions on Adani shares, creating buying pressure and providing support to Adani Group’s stocks at a critical time.

Hindenburg further stated in their blog that when public and Supreme Court pressure mounted for an investigation into the matter, SEBI seemed to stumble. Initially, SEBI appeared to agree with many of the key findings in their report. 

As an example, Hindenburg pointed out that, according to Supreme Court case records, SEBI failed to satisfy itself that the Foreign Portfolio Investors (FPIs) funding Adani were not connected to the group. SEBI later claimed that it was unable to conduct a thorough investigation.

Hindenburg Accuses SEBI of Shielding Uday Kotak’s Firm

Hindenburg Research has accused the Securities and Exchange Board of India (SEBI) of protecting Uday Kotak’s established brokerage firms. They claim that these firms created offshore fund structures, which were used by their investor partners to profit from short-selling Adani Group shares. 

SEBI’s notice mentioned only the “K-India Opportunities Fund” and concealed the name “Kotak” under the abbreviation “KMIL,” which stands for Kotak Mahindra Investments.

Hindenburg also pointed out that Uday Kotak, the founder of Kotak Bank, personally led SEBI’s 2017 committee on corporate governance. They suspect that SEBI’s failure to mention Kotak or any other member of the Kotak board might be an attempt to shield another powerful Indian industrialist from scrutiny, a move that appears to be accepted by SEBI.

Four Key Points in SEBI’s Show-Cause Notice

SEBI issued a show-cause notice regarding the trading activities of certain entities in Adani Enterprises’ shares both before and immediately after the release of the Hindenburg Report. The notice highlighted that there was a concentration of short-selling activity in Adani Enterprises’ derivatives just before the report was published.

Following the report’s release, between January 24, 2023, and February 22, 2023, Adani Enterprises’ share price plummeted by nearly 59%. SEBI’s notice also referenced how shares were traded during this period.

The K-India Opportunities Fund Ltd. opened a trading account and began trading in Adani Enterprises’ shares just days before the report was published. After the report was released, they squared off their short position, resulting in a profit of ₹183.24 crores.

SEBI’s notice accused Hindenburg Research of deliberately sensationalizing and distorting some facts in their report by using “scandalous” headlines. SEBI stated that Hindenburg made false representations in their report without any evidence.

Adani Enterprises’ Shares Plunge 59% Following Report

On January 24, 2023 (January 25, Indian time), the share price of Adani Group’s flagship company, Adani Enterprises, was ₹3,442. The next day, January 25, the share price dropped by 1.54%, closing at ₹3,388. By January 27, the share price had further declined by 18% to ₹2,761. By February 22, the shares had plummeted 59%, reaching ₹1,404.

Short Selling: Selling First, Buying Later

Short selling is the practice of selling shares that a trader does not own at the time of the trade. Later, these shares are bought back to close the position. Before short selling, it’s necessary to borrow or arrange to borrow the shares.

In simple terms, just as you normally buy shares first and then sell them, in short selling, you do the opposite—you sell the shares first and then buy them later. The difference between the selling price and the buying price determines your profit or loss.