Gossip & Tales: SEBI Sings Hindenburg Tune On Adani, Ambani's Balancing Act, A Bite Of Gold Cadbury

Sebi's late realisation on Hindenburg

Back in 2022, a report by U.S. based short seller Hindenburg Research kicked up a storm with its wild allegations against the Adani Group. Among the many other claims, Hindenburg said that Adani Group companies violated Sebi norms on minimum public shareholding as promoter holding was beyond the stipulated 75 percent. Nearly two years after Hindenburg first made its allegations, market regulator Sebi has now sent a show cause notice (SCN) to Adani Group alleging wrongful classification of certain promoter group entities as public shareholders. The SCN was revealed in the disclosures made by Adani Energy Solutions in its September quarter results filed on October 22. “During the current quarter, a SCN was received alleging wrongful categorization of shareholding of certain entities as public shareholding and consequences therefrom," the disclosure read.

Interestingly, Sebi's notice to the Adani Group entity comes at a time when the incumbent Sebi chief's extension is due and an advertisement inviting the applications from aspirational candidates is likely to be issued any time by the government before the winter session of the Parliament begins.

On the reclassification of the promoter entity to the public category, it was Infosys founder promoter NR Narayana Murthy who had first set a precedent by seeking to reclassify his holding in the company to the public category. In 2014, after he exited the Infosys board, Murthy told the company to reclassify his holding in the company to public category. The logic behind Murthy's letter was that being classified as a promoter comes with a lot of responsibilities, exposure to being pulled up for management misdemeanours under the law, as well as being subjected to onerous insider trading rules. But in the case of Adani Group, the logic may totally differ.

Sebi Chief's Fear On Small and Mid-cap Stocks Comes True?

Since the beginning of 2024, ahead of the national elections, incumbent Sebi chief Madhabi Puri Buch has been expressing her fears of valuation froth in India's stock market, especially in the small and mid-cap stocks. The "froth" in small and mid-cap stocks appeared like "irrational exuberance," Ms Buch had declared in March and warned India's retail investors in advance. "Valuation parameters are not supported by fundamentals at all," Buch had stressed. Before her term expires in March 2024, small and mid-cap stocks have witnessed a sharp decline. Most high flying stocks have seen 20 percent to 60 percent fall from their 52-week high levels and the fear still remains elevated. But the fact remains that the crash in small and mid-cap stocks was triggered by regulatory action more than fundamentals. As a consequence of a regulatory circular, 1000 small and mid-cap stocks could no longer be pledged for margin trading, leading to fast unwinding of positions in them, causing further market-wide collateral damage.

Balancing Act

It is no secret that the U.S. does not like India cosying up with Russia and China too much. This week, when Prime Minister Narendra Modi was in Russia attending the BRICS summit and participating in an event to launch a trade settlement platform and common currency that could counter the U.S. dominated financial and trade system, billionaire Mukesh Ambani was putting up building blocks for partnership with one of America's largest deep tech companies, Nvedia. On Thursday, when PM Modi returned from Russia, Mukesh Ambani-owned Reliance and Nvidia, the giant of Artificial Intelligence computing, announced a joint venture to build AI infrastructure in India. The announcement was made by CEO Jensen Huang during a chat session with Mukesh Ambani at the Nvidia AI Summit 2024 on Thursday. AI infrastructure is nothing but tons and tons of data driven deep tech, which can give insides into various trends related to a country's population, social, religious and financial systems, which can then be used to build products. Ambani's likely rival in the telecoms sector, Elon Musk has been waiting for many months now for a clearance from the government to launch his satellite mobile telephony service called Starlink and partner with an Indian company. But Nvedia's entry into India for building AI infrastructure has been swift. "India should not export flour to import bread," said Jensen Huang during his conversation. Hope that happens and data remains in India.

Cold Feet

Incumbent Sebi chief's no show to a summons by the Public Accounts Committee (PAC) of the Parliament, where the opposition Congress leads the charge, is bad publicity. This especially since the Sebi chief had earlier confirmed that she would be attending the PAC meeting virtually but less than two hours before the VC meet was to begin, Madhabi Puri Buch informed the PAC chairman KC Venugopal (of Congress) that she and her team will not attend due to "exigencies". The PAC had summoned the Sebi chief to review the regulator's functioning amid conflict of interest allegations linked to Hindenburg Research's claims against Ms Buch. Rumour mill says that PAC meeting was a set match to put the spotlight back on Adani. But somebody within the government caught wind of it and hence asked the Sebi chief to abstain?

Gold Cadbury In GIFT

GIFT City in Gandhinagar has caught the fancy of gold importers. There are two reasons: Gold import duty at GIFT City is 1 percent lower than the prevailing rate outside. The other key reason is that the gold imported outside International Finance Services Center i.e. GIFT City has to be first melted into jewellery or coins and then sold in the market. Whereas, Gold imported at GIFT City is allowed to be sold in the Indian markets in its original 'Cadbury' form as it was imported. It is another key element that makes Gold imports at Gift City cheaper than at other places since melting gold and then reforming them has a cost. Hence, Gold imports at GIFT City have led to disparity and jewellers across the country are crying foul since they say there is no level playing field. But it is a mystery as to why the banks that are importing gold outside GIFT City at other ports are reluctant to register at GIFT and import from there? While there is no bar on registration for any importer at GIFT City, only a few are reaping the benefits so far. It is high time the government banks realise that everybody wants a bite of the Gold Cadbury.

Law Firms Praying For Sebi Chief

Corporate law firms, big or small, are all praying that the government extends the tenure of the incumbent Sebi chief in March. For the lawyers, business has been good since Madhabi Puri Buch took charge. She brought in a culture of KRA for the rank and file in Sebi, following which officials are working hard till late hours. Action on every front, be it issuance of Show Cause Notices, investigations, raids etc has surged. Some of the big corporate houses are facing the heat from Sebi, keeping the law firms happy. Last heard, a major corporate house that restructured business and divided assets, has received a SCN from Sebi for benefiting at the cost of retail shareholders.

Markets Missing PC

Stock markets are missing former Finance Minister P Chidambaram (PC), especially since there has been no respite from the recent fall in markets.
When he was FM, PC spoke plenty during market hours and traders loved it. In 2006 when markets were crashing, PCs came out and gave a media bite: "Don't panic, be invested. There was a certain nervousness in the market. My message to retail investors is to stay invested. FIIs are here to stay... There is no reason to panic. Banks will provide money to those who want to provide margin calls. The system is in place and whatever has to be done has been done. My information is that brokers operating on proprietary accounts are under margin pressure but MFs are buying and FIIs have also bought today. I have spoken to the RBI, there is ample liquidity," PC told reporters after Sensex crashed by 1100 points in May 2006. Then, when markets crashed after his Budget speech in 2013 on tax changes, PC told reporters from the South block, "There was a printing mistake in the budget document. FIIs are buying." Instances like this galore. Everytime, markets fell, traders holding long positions looked up to PC for his two cents. In most instances after PC spoke, the markets recovered. Traders say that under the current BJP rule they feel orphaned: "Even when the Sebi chief says there is a bubble in the market, following which the stock prices fall, our FM Nirmala Sitharaman ji says she wants to leave the markets to its wisdom."

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.