Credit Dhirendra Kumar of Value Research
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Every
Saturday, I share my perspectives on a topic investors will find
useful. This time let’s look at how the research firm’s latest antics
are a blatant interference in India's economic sovereignty.
The Hindenburg gambit: short-selling and political meddling
Anyone can take two distinct views on Hindenburg Research's campaign.
(1)
Hindenburg is an equity research outfit that specialises in negative
research. It digs dirt against overvalued companies, shorts those
stocks, makes its reports public, and thus makes (a lot of) money. This
also helps the markets in general because it's good for companies to be
valued correctly and bad for them to be overvalued. This was the nature
of its report against Adani group stocks in early 2023.
(2)
Hindenburg specifically targeted the Adani group as part of a political
campaign to tar India's biggest business groups and the government, and
in the process, it made a lot of money shorting these stocks.
(2a)
Hindenburg is trying to discredit the SEBI investigation by making
allegations against the SEBI chairperson. In the process, it also tried
to make money again by shorting the Indian Markets.
Until
a point back in 2023, when many people thought that point 1 above was
mostly correct. There was a significant narrative in India that
Hindenburg's primary role was that of a white knight trying to rescue
Indian democracy or some such nonsense. The fact that this outfit's
entire business model was making money by crashing stocks was
conveniently forgotten.
However,
as time has passed and more information has come to light, the pendulum
of public opinion has swung the other way. Now, we have Hindenburg's
brazen attempt to refuse to respond to SEBI's show-cause notice. Topping
that, this outfit has come up with another report that claims a 'link'
between the SEBI chairperson, her husband, and the Adani group.
People
who have actually read the report say it has nothing, and by now, that
is amply clear. However, the real question is, what did Hindenburg hope
to achieve by making accusations that would not stand up to scrutiny?
The answer is twofold.
Firstly,
it's an 'attack is the best defence' move. Once it has made accusations
against the regulator, it can dismiss any investigation and action by
the regulator as being biased. It has dismissed the show-cause notice as
'nonsense' and refused to respond. Part of the bravado is an implicit
racist and/or colonial attitude. Since Hindenburg is a Western entity,
how dare the regulator in a non-western country like India question it?
We saw a lot of this sort of nonsense during the whole COVID-19 vaccine
episode.
Secondly,
this attitude is readily accepted and amplified by a part of the
political and media establishment. The speed with which the Hindenburg
accusations were accepted as valid and then repeated and amplified made
it pretty clear that this was an organised and coordinated effort. Apart
from acting to bolster Hindenburg's own defence, there was a clear hope
that the markets would tank and that it would severely damage the
regulator's reputation. Of course, there would also be a bonanza of
anyone trying to short the markets. As if on cue, we had the spectacle
of a section of politicians and media rising in a chorus to support
Hindenburg.
Anyone
else who has been observing this drama should understand that we have
entered a somewhat dangerous phase of the political discourse in India.
Quite clearly, we have a powerful domestic political constituency that
now equates inflicting institutional damage to the country and its
economy with winning a political battle.
The
Hindenburg saga is a stark reminder of the complex interplay between
global finance, political interests, and national institutions. While
short-selling and investigative financial research have their place in
maintaining market integrity, this affair raises critical questions
about the potential for abuse and manipulation. We'll likely see more
such episodes, and it's important for investors and the public to stay
aware of all this and critically assess information from all sources at
every step.
Written by
Dhirendra Kumar of Value Research
