Until the early 1990s, Indian media drew a fat red line between the business press and general interest newspapers, preventing both from reflecting all of reality. The business side was obsessed with wheat, wine and oil, happy to ignore politics. General papers obsessed on politics and sport, cramming economic, financial, trade and corporate news into a single page. Meanwhile, society was divided into a minority that appreciated the connections between business and politics, and the vast, clueless, well-meaning majority.
Media reflects the nation, whose schizophrenia ended after liberalisation made economic issues mainstream and growth became an election issue. About that time, Dhirubhai Ambani backed a newspaper that gave both worlds equal weight right in the masthead. Now, as the Hindenburg Research saga enters its second innings and the short-seller moves the crosshairs from the Adani family to the Buch family, from targeting buccaneering in business to impropriety in regulation, we are all older and know politics is just business as usual.
Despite pious protestations of innocence, Indian business and politics have always been bedfellows. Harshad Mehta brought Sebi into headlines and also infamously gave PM P V Narasimha Rao a suitcase with no key to open it with.
Now, Rahul Gandhi speculates Modi’s government would fall when his pal Gautam Adani’s transnational empire collapses. But after Hindenburg 2.0, the dominos could fall another way. By attacking the credibility of the regulator, the activist short-seller based in New York could do more damage to the political administration that backed her than to the business environment.
In brief, Hindenburg had accused Gautam Adani of pumping up his stocks by round-tripping his own money. Now, the crosshairs have moved up beyond the food chain. Hindenburg’s target is Madhabi Puri Buch, the Sebi chief installed by the BJP, who says her finances are an open book. Could be a bestseller, who knows?
Hindenburg finds that via obfuscations, Buch invested offshore precisely where Gautam Adani’s brother Vinod did. Inexplicably, she preferred high-risk instruments offshore over safe Indian funds she oversaw. Her husband took over her investments when she assumed office, but a spouse is not at arm’s length, certainly not where the Hindu Undivided Family is a tax entity. Second, in response to Hindenburg’s accusations against Adani, the Supreme Court mandated Sebi, under Buch, to investigate. She should have recused herself but didn’t. Besides, the probe was never completed.
Sebi’s remit is to maintain fairness. Surprisingly, instead of contesting Hindenburg’s accusations with facts, the ruling party rants that the Congress’s demand for a joint parliamentary probe is a ‘wider conspiracy’. George Soros has predictably been trotted out, but he’s just a splendid old Boojum, because the real George Soros is 94 and retired long ago. The right the world over needs a new Boojum and can’t find one. Maybe because such a thing doesn’t exist outside Lewis Carroll’s universe.
Hindenburg Research may look fishy because short-selling is a mystery even to regular investors who bet the value of good corporations will rise. That’s generally the case, which is why people are advised to stay invested—‘going long’ in brokers’ parlance. However, stock markets are a lot like Las Vegas, so it’s also OK to ‘go short’, to bet in the short term against the rise of a stock the investor believed overhyped. Right now, some people are betting against fail-safe stock like Nvidia and Tesla, hoping to profit from temporary dips, and it is legal to ‘short’ them.
‘Shorting’ is high-risk as it bucks the trend, but it’s legal. When it is backed by research, stakeholders regard ‘shorting’ as a useful corrective. Markets should operate transparently, with maximum information symmetry, but the facts are often obscured by hype. Companies spend millions to manipulate the sentiment of investors. If a short-seller corrects hype by unearthing adverse information, the market is cooled.
Here’s an instance from Hindenburg’s career: pioneering electrical engineer Nikola Tesla’s name inspired two US companies, Elon Musk’s Tesla and the now-obscure Nikola, headquartered in Phoenix, Arizona. Both make electric cars. Founded by Trevor Milton in 2014, Nikola listed on Nasdaq in March 2020. Its stock doubled in value in less than a week after listing in early June. Having earned almost nothing through 2020, the company was valued at $13 billion in August. It was like a 1990s’ internet bubble stock: Nikola was taking orders for an electric vehicle whose prototype did not exist. Sometimes, investor sentiment is just the madness that besets lemmings.
On September 10, 2020, Hindenburg accused Milton of “intricate fraud”. He spoke darkly of a conspiracy of Tesla fans and paid trolls. Nikola shares fell 20 percent and potential collaborators like BP backed away. The stock collapsed from $35.55 on September 4, 2020 to $2.51 in February 2023. It is now $8.44. The company is still afloat but the balloon is in tatters.
Now the Indian establishment is imagining conspiracies. But as the case of Nikola reveals, short-sellers are useful devils—especially a short-seller who has declared its intentions by assuming the name of a doomed zeppelin, a caution to all who believe in the irresistible power of gas.
(Views are personal)
(Tweets @pratik_k)
Pratik Kanjilal | For years, the author has been speaking easy to a surprisingly tolerant public
