The Adani Group has welcomed the findings of a Supreme Court-appointed panel’s “no regulatory failure” and “no evident pattern of manipulation” following the investigation of stock manipulation and financial fraud allegations levelled at the Group by US-based short sellers Hindenburg Research.

Adani Group stocks surged on Monday, after the panel’s revelations were published late Friday in New Dehli.

The Adani conglomerate has been the subject of the special investigation, a bit like a Royal Commission, after the US short-seller bombshell allegations.

According to the Indian Express, the panel ‘has not found any regulatory failure and this point itself deflates the entire narrative that sought to disrupt Parliament and cast aspersions on the regulations dealing with the Indian capital market.’

The handed down report also says that the Indian market was not unduly volatile, though the Adani group’s stocks showed an increase in volatility after the release of the Hindenburg report.

Meantime, investors piled back in. Adani Group stocks jumped as much as 19%, Monday, with the group market capitalisation crossing the ₹ 10 lakh crore or USD$133.33 billion mark. 

The group’s market share rose from ₹ 9.34 lakh crore on Friday.

The group of 10 Adani stocks found some US$10 billion through the Monday session. Easily the most decisive gains since Hindenburg’s eviscerating report relesased back in January.

The Flagship Adani Enterprises Ltd surged about 19%, adding to Friday gains and closing at the highest level since Jan 31.

Trapped short positions were unwound aggressively, according to Bloomberg, and investors were ‘inclined to take new long bets’ on the group.

The sentiment toward the conglomerate has changed markedly from a week ago, when fears persisted over the exclusion of some Adani stocks from MSCI Inc indexes and potential equity dilution from fundraising plans by two companies renewed a selloff.

The interim report “is helping because the fear of further inquiries against the group will reduce,” Deepak Jasani, head of retail research at HDFC Securities told Bloomberg on Monday night.

“It’s given the group a clean chit of sorts. While the change in perception from foreign investors will be gradual, this is a pretty significant step.”

In its 173-page report, the committee said that based on the data from the markets regulator Securities and Exchange Board of India, or SEBI, it saw “no evident pattern of manipulation” in the steep stock-price rise in billionaire Gautam Adani’s companies that can be attributed to “any single entity or group of connected entities.”

This referred to a central allegation of Hindenburg, which claimed in its Jan 24 report that offshore shell firms tied to the Adani family were bidding up the empire’s shares.

Adani Green Energy Ltd, Adani Transmission, Adani Total Gas Ltd, and Adani Power Ltd rose by their 5% limit on Monday while Adani Wilmar Ltd surged 10%. Adani Ports and Special Economic Zone Ltd jumped 6.1%.

At the same time, in further good news for its billionaire founder G Adani the Indian stock market regulator the Securities and Exchange Board of India (SEBI) likewise told the Court it had “drawn a blank” in its probe into alleged violations in money flows from offshore entities into the Adani Group.

Both independent investigations were triggered after Hindenburg Research published a report on 24 January 2023 that used selective misinformation and discredited allegations to purposefully undermine the reputation of the Adani Group and profit by short-selling shares in Adani Group companies.

The Adani Group has vehemently denied the allegations.

The findings of the expert six-member Committee appointed by the Supreme Court were made public late on Friday 19 May (Indian Standard Time) and state the “allegations of stock price manipulations or violation of Minimum Public Shareholding norms by Adani group companies cannot be proved at this stage.”

“At this stage, taking into account explanations provided by SEBI (and) supported by empirical data, prima facie it would not be possible for the Committee to conclude there was a regulatory failure around the allegation of price manipulation,” the Committee said in its report.

The Committee’s report also categorically stated that short selling activity took place before the release of Hindenburg’s report, with evidence of a build-up in short positions and profiting from squaring off positions after prices crashed post-publication of Hindenburg’s disproved allegations.

The group, appointed by the country’s highest court was formed in early March and is made up of some of India’s biggest names in business and law.

Headed by retired Supreme Court judge Justice AM Sapre and including retired Bombay High Court judge Justice JP Devadhar, ex State Bank of India Chairman OP Bhatt, ex ICICI Bank chief KV Kamath, Infosys co-founder Nandan Nilekani and regulatory expert Somasekhar Sundaresan.

The panel also also dismissed allegations of systemic risks in the stocks. 

In the report, the panel said there were no “prima facie no regulatory failure on the part of market regulator SEBI (Securities and Exchange Board of India)” and that there was no price manipulation on the part of the Adani Group. 

The conglomerate had taken necessary steps to comfort retail investors and the mitigating measures had helped in building confidence in the stock, the panel said.
 

Bravus: Bravo

Adani’s Australia-based subsidiary, Bravus told Stockhead it was pleased with the committee’s findings.

“(Which) confirm the Adani Group’s public position that the Hindenburg Research allegations were not only false and baseless, but were also motivated.

None of Bravus’ businesses were contacted by the Australian Securities and Investments Commission or the Australian Tax Office about any of the allegations in the Hindenburg Report.

All of Bravus’ businesses are Australian companies that comply with Australian corporations and securities legislation.

“It remains business as usual at our port, rail, and mine operations, which are exporting Australian coal, mined at the Carmichael mine and by our customers in the Bowen Basin, to the world,” the company said in a statement released  Monday.
 

Investigations have further to run

That said, investigations are still ongoing.

SEBI itself has an August 14 deadline from the Supreme Court to close its probe on any securities law violation by the Adani Group, as well as any unusual market activity in its stocks.

Investors will also watch for the decision taken on fundraising proposals at Adani Green Energy Ltd’s board meeting on May 24. Meanwhile, the changes to MSCI indexes will take effect at the close of trading on May 31.