On Wednesday, February 8, Prime Minister Narendra Modi responded in Parliament to Rahul Gandhi’s speech on the previous day. The following day, in the Rajya Sabha, he was even more combative despite the heckling and the misbehaviour from the opposition benches. This, in addition to BJP MP Nishikant Dubey’s detailed rebuttal of opposition allegations earlier, gave the nation a better perspective on the Adani issue. Finally, the Supreme Court’s own approach, which emphasised better regulatory mechanisms for our markets, was also reassuring despite the continuing bloodletting on Adani shares.
I heard Modi’s speech and, like most Indians, was impressed by his comprehensive counter to his adversaries. It was another masterly performance, which showed how much Modi has aced the parliamentary system of debate and rebuttal. Modi was a picture of composure, peppering his speech with sarcastic jibes, humour, and occasional verse quotations. As is his usual wont, he went far beyond defending himself and his party. Seeing an opening, he went on the offensive, using the occasion to his and his party’s advantage. Modi’s leadership is both commanding and credible. When it comes to political and parliamentary competence, there is no competition—even if there is an opposition—to Modi.
Now that the dust over the Hindenburg Adani hatchet job seems to be settling, at least for the time being, what are the lessons that may be learned? First of all, anyone glancing through the Report would hardly call it “research”. It is a heap of allegations and accusations. The word “fraud” occurs 38 times in the report, but I was hard put to find a single verifiable proof with clearly documented indictments by any federal or law enforcement authority.
Hindenburg is a short seller, which means that it specialises in crashing the price of companies to make money. Being an interested, even motivated, party in the downfall of Adani Group hardly earns it credibility or trust. Instead, Hindenburg reveals itself as a merciless, if not mercenary, operative attacking selected targets for its own—and others’—profit. It is by no means an independent watchdog or disinterested party, whose aim is to protect shareholders and investors’ money. At any rate, Adani came out with a 413-page rebuttal. It is for interested observers and investors to read both to make up their own minds on the matter.
Having said this, it would be imprudent not to admit that Adani stocks were grossly overvalued. Highly levered, with huge stockpiles of debt, and very high price-to-equity ratios, they were already inflated and unattractive to ordinary investors. The run up on several Adani company shares in the last year, which had made Gautam Adani the second richest person in the world for a while, was, to say the least, somewhat unusual, if not unnatural. The bubble was bound to burst. It only needed an opportunistic short seller like Hindenburg to hasten the correction.
But here is where Adani Group could have avoided the sort of fallout, if not humiliation, that it suffered. The market is a very tough territory to endure. Every big boy or girl knows that already. Not the least of all Gautam Adani, who has risen through the ranks the hard way. How is it that he and his advisors did not anticipate their extreme vulnerability? Why did they not have their nose to the grindstone and ear to the ground? Especially before a ₹20,000 crore FPO? What were their corporate minders and keepers, not to speak of informants, doing? Why weren’t they warned well in time?
That is what surprises me. In fact, it is uncanny how in the final debate in a celebrated literature festival, those in favour of the proposition “The divide between the left and right can never be bridged” kept targeting Adani. Their argument was that no one could be so rich or rise so fast without some wrongdoing. The wrongdoing they laid at the door of the present ruling dispensation.
This debate was held on January 23, a day before the Hindenburg strike. How did so many seem to know that Adani was going to be targeted while the group itself went about as if it was business as usual? If information is power, the Adani group was certainly short-changed and tripped up.
There is also a larger lesson for our market regulators, such as SEBI, and our public sector banks, such as the State Bank of India, and large institutional investors, such as the Life Insurance Corporation of India. A well-regulated, transparent, and accountable market inspires trust, which in turn converts into billions of dollars of investment. Even a whiff of wrongdoing or scandal can damage not just a company’s, but a nation’s credibility.
As to the Adani group itself, they did well in returning investors’ funds when their stock was being hammered. Several of their enterprises are solid and profitable; some have actually not only regained their pre-Hindenburg values, but done even better. The group as a whole is endeavouring to reduce and repay, even prepay, its debt.
Adani Group is still profitable, with an estimated EBITDA (earnings before interest, taxes, depreciation, and amortisation) of ₹50,000 crore in FY23, according to market veteran Madhu Kela. It has never defaulted on a loan nor on employees’ salaries. Allegations of round tripping and underhand dealings, thus, can only tarnish its reputation and future prospects. In the end, the greatest companies in the world, or for that matter in India, are also those with the best corporate governance and financial transparency.
If Adani Group takes this trashing as a learning experience and improves both its books and its image, it is sure to regain its standing in the market both in India and overseas. It will, of course, have to take its present troubles in its stride, cutting its losses in some businesses and geographies, but gradually regaining its pole position in its core businesses such as infrastructure, energy, ports, minerals, cement, and so on.
As to India Inc., if the stock market is anything to go by, it has already recovered. India, too, as the world’s fastest growing economy, is bound to brush off the Hindenburg hitjob, though it was timed to coincide with the budget and thus hurt India. A hard knock, once in a while, should only make us tougher and smarter. As to Modi and the present BJP government, they have already controlled the impact of the Adani fallout.
A word on Hindenburg itself. Having taken the name of a German mega airship that burst into flames over New Jersey before it could land, who knows, perhaps, instead of crashing other companies, it may itself auto combust one day just as its namesake did nearly 86 years back? According to the law of karma, what goes around comes around.
(Views are personal)
Makarand R Paranjape
Professor of English at JNU
(Tweets @MakrandParanspe)