Adani Hindenburg Row: The Enforcement Directorate (ED) has named almost a dozen entities, including foreign portfolio investors (FPIs) and foreign institutional investors (FIIs), based in tax havens, as the “top beneficiaries” of short selling in Adani Group shares, according to The Indian Express. Following its preliminary inquiry into the Hindenburg Research report and the ensuing market meltdown, the ED provided the information to the Securities and Exchange Board of India (Sebi) in July. It should be highlighted that short sellers make money by borrowing, selling, and then buying their shares back at a reduced price in the future.
Short Selling Probe Uncovers Timely Positioning and Hidden Ownership
According to the ED’s findings, which were emphasised in the Indian Express story, some of these short sellers started their positions just a few days or a few weeks before the Hindenburg Research report was released, while others were short selling for the first time. Three of the firms are situated in India, with one of them being a foreign bank’s Indian office, according to the agency’s inquiry. There are four in Mauritius, one in France, one in Hong Kong, one in the Cayman Islands, one in Ireland, and one in London. None of the FPIs or FIIs have disclosed their ownership structures to the authorities in charge of income tax. For instance, one organisation was formed in July 2020 and was dormant until September 2021. It claimed to have earned Rs 1,100 crore in just six months, from September 2021 to March 2022, on a Rs 31,000 crore in sales. A other international financial services company that operates as a bank in India recorded meagre profits there but a sizeable revenue of Rs 9,700 crore as a FII without paying any income tax.
Probe Reveals Suspicious Trading Patterns and Regulatory Oversight Concerns
A Cayman Islands-based FII that was previously found guilty of insider trading and who was designated as one of the “top beneficiaries” in the US paid a $1.8 billion punishment. On January 20, this FPI started a short position in Adani Group shares, and on January 23, it got longer. On January 10, a Mauritius-based fund began short selling for the first time. Two Indian companies were noted among the “top short sellers”—one registered in New Delhi, whose promoter Sebi has initiated enforcement action for deceiving investors and stock market manipulation, and the other registered in Mumbai. An Expert Committee appointed by the Supreme Court to look into regulatory shortcomings in regard to the Adani Group had heard the ED’s findings. The committee called attention to “potentially violative selling by specific parties” and recommended Sebi look into such conduct. In a recent petition to the Supreme Court, Sebi said that 22 investigation reports had been completed, one of which dealt with the short positions or trading patterns of certain entities in Adani Group firms around the time the Hindenburg report was published. The market regulator is awaiting additional data from other organisations. The ED’s decision raises the possibility that FPIs and FIIs are not the actual recipients of the profits from short selling but rather are serving as brokers for larger foreign participants.