Adani Stocks: What Price Rigging?
US Judge Potter Stewart will be remembered for his famous definition of obscenity and pornography at a time when the US justice system was struggling to balance freedom of expression and the State’s job to maintain public decency. He quipped: “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description, and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…”
This rule applies to various aspects of our lives where rigid definitions are hard to establish or decisions have to be made under uncertainty. One has to go by rule-of-thumb or heuristics or the ‘smell test’, as it is often called in the financial world when things look abnormal but one can’t pin anything down.
People walk away from deals when things don’t smell right. They don’t wait for a regulator to conclude an investigation and nail the accused over 20 years. Why is this relevant?
In late-January 2023, Hindenburg Research, a US financial firm, published a report alleging that Adani group stocks were overpriced, the group has broken several securities laws and the fair value of the group’s stocks should be significantly lower. This report led to an immediate crash in Adani stocks, attracting some public interest petitions. Instead of rejecting the petitions (because the Supreme Court—SC—would have had many more pressing matters to hear), the apex court set up an expert committee to examine three key issues in two months.
The committee delivered its 178-page report on 6th May. On the main issue of any regulatory failure, the committee concluded there has been no failure so far on the part of the Securities and Exchange Board of India (SEBI) with regard to Hindenburg’s three main allegations: a) violation of minimum public shareholding; b) non-disclosure of related-party transactions; and c) price manipulation of Adani stocks.
SEBI is yet to present its report, but no one is waiting for it anymore.
Let us look at this from a public perception perspective. Here are facts about Adani stocks that remain smelly, despite an apparent clean chit from the SC-appointed committee.
Smell Test # 1 - Adani shares were insanely rigged: Adani Green soared more than 5000% in three years going from Rs55 to Rs3,000; Adani Transmission was pushed up 1500% in two years going from Rs250 to Rs4,000; Adani Total Gas zoomed 3800% in 2.5 years up from Rs100 to Rs3,900; and Adani Enterprises went up 2200% in 2.5 years from Rs175 to Rs4,000. On 20 January 2023, when Adani Total Gas had a jaw-dropping price/earnings multiple of 850, its peer group, comprising Indraprastha Gas, Mahanagar Gas and Gujarat Gas, traded at multiples of 19.7, 15.9 and 23.3, respectively. It is still at 141, while the peer group is around the same at 23, 13 and 22, respectively.
As justice Stewart would have said, we know it when we see it.
I will repeat myself here from a previous column because it bears repetition of how brazen the manipulation was. At its peak, Adani Enterprises, a component of the Nifty 50, was valued at a price-to-earnings (P/E) ratio of 427. If Reliance Industries was valued at a P/E of, say, 400, its market-cap today would be 16 times what it is and Mukesh Ambani would be the world’s first trillionaire, with a net worth of US$1.38trn (trillion)!
And, of course, if Tata Consultancy Services (TCS) and Infosys were similarly valued, the BSE Sensex would be 8-10 times higher at 480,000 to 600,000 instead of 60,000 or so!
On the other hand, if Adani shares were valued as modestly (or correctly) as those of TCS or Reliance Industries, Gautam Adani’s peak net worth would have been only a few billion dollars, not US$150bn (billion) which briefly made him the world’s third richest man.
Hindenburg report pricked this huge bubble even if temporarily.
Smell Test # 2 - Shady investors: Why is the Adani group not able to boast of many marquee global investors including sovereign funds and large pension funds? Why are the majority of portfolio investors rather shady outfits which invest primarily in Adani stocks and a sprinkling of others? Why did four funds—Elara India Opportunities Fund, Cresta Fund, Albula Investment Fund and APMS Investment Fund—invest as much as 90% of their $6.9bn under management in the Adani empire?
Smell Test # 3: SEBI’s surveillance: SEBI has been claiming that it has ‘deeply integrated technology’ in its surveillance functions that helps it unearth complex modus operandi of manipulation. It claimed the use of “various innovative techniques, such as pattern recognition and data analytics” to process over 550 crore trade messages that are generated every day.
In the 2021-22 SEBI annual report, a box titled ‘Data Detectives’ boasted the use of artificial intelligence (AI) and machine learning for ‘robust, agile and scalable capabilities’. Another claim was a ‘Data Lake’, which reportedly “has characteristics such as visualization, time series/machine learning analytical capabilities, ability to seek and search both structured/ unstructured/semi-structured data, self-service business intelligence capabilities, in-memory processing of data, etc.”
And yet, while SEBI has completed scores of investigations into price and volume manipulation over the past few years, it did not notice anything wrong with the 5000% price rise of Adani Green stock.
While the Adani group sympathisers can go blue in their face proclaiming innocence, the Adani stock price manipulation saga will pass into public memory as one of those crimes that simply escaped being nailed down, perhaps because too many vested interests were involved.
Remember, no one killed one and injured four innocent people though a film star’s vehicle ploughed over them in Mumbai. No one killed Arushi and Hemraj. And no one manipulated Adani stocks.
(This article first appeared in Business Standard newspaper)
11 months ago
During covid one of the symptom was loss of sense of smell . Adani shares were surveilled by those under acute attack of CoVID ...
11 months ago
Congratulations on an excellent article. Your smell tests have hit the nail on the head, and those of supporters or hirelings, whose ridiculous comments can be seen hereunder.
11 months ago
The duck test—"If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck" --Interchange -- Duck to fraud-
11 months ago
looks like like so many failures of the opposition one more failure to their credit.Waste of time listening to them and SC should penalise who had wasted time and also make them apologise in writing and an amount should be made payable to SC for wasting their time.This will ensure that next time this kind of frivolous charges will not be made .
11 months ago
The glare and lure of Namonomics!
11 months ago
Wanted to write something. But then discretion is better than valour.
11 months ago
Very good analysis. Those who are focused on making India a $ 5 trillion economy may not like it.
Replied to ramachandraraju comment 11 months ago
Easy just rig data...2024 we will be $10 trillion
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