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Good morning. Multiple Hindenburg Reports later, Gautam Adani seems to be trying to get his house in order. While this is a step in the right direction, at least for perceptions, there is much to be done by the promoters of the company in the long term. Read on to know more.  

In other news, India is now the top oil buyer from Russia. Meanwhile, overseas spending by Indians reduced significantly after the government levied taxes.

THE TAKE

Will Adanis Do What The Regulators Failed To?

Over two decades ago, an institutional investor questioned the Ambani family, promoters of Reliance Industries by saying, “How can we invest in a stock in which we feel the promoter himself is actively involved in?” Whether true or not, this information came from a source close to the family —  an investment banker who helped in their issuances.

Fast forward to the present, the Adani Group is faced with the same perception issue. Like Reliance then, the Adani Group seems to be protected from regulators in general and specifically like the Securities and Exchange Board of India (SEBI). The SEBI investigation into the ownership of companies sitting outside but allegedly acting in concert with the promoters in India seems to have gone nowhere.

Adani Group stocks like Adani Enterprises, Power and Energy Solutions have a declared promoter holding of close to 75%. This means floating stock is low and thus the likelihood of prices shooting up is high, with all other factors constant.

A few weeks ago, Hindenburg Research, the New York-based short-seller released a fresh set of questions, this time targeting SEBI chairperson Madhabi Puri Buch and questioning her impartiality given that there were some distant links between her own past and private career investments and some Adani funds. 

Buch needs to disclose publicly the areas of conflict in past decision-making that she claims she has done to the SEBI board. But this hasn’t happened as yet, and one would infer that this is because her revealing anything publicly would throw fresh light on Adanis’ dealings with law enforcement and SEBI. The clout the Adanis seem to hold, even if for good reason, isn’t helping their image, but sullying it further. With each subsequent shot Hindenberg has fired, Adanis’ reputation in the eyes of institutional and other investors has undoubtedly dipped further.

One example is the low institutional and mutual fund investor holding. Fund managers have tried to avoid getting into much detail but acknowledged their low exposure. But it's not fund managers. Investors usually question the system as a whole when they see it not working transparently, particularly if they are exploring investing further in businesses where Indian conglomerates like Adani already have a presence.

Hindenburg Research had specifically criticised the Adani family for using a complicated web of offshore entities to control a larger stake in their listed businesses than disclosed to exchanges. Like before, there is a question of how free and fair the Indian capital market ecosystem is. There is a tendency to believe that if something works 90% of the time freely and fairly, then we should not worry or bother too much about the other 10%. This logic, which is quite clearly in operation here, has not worked in the past and is clearly not working for Adani either. With every Hindenburg hit, the image of the company’s stock is suffering and by extension the country’s. 

The Adanis have evidently recognised this after their initial and somewhat nationalistic pushback in January 2023, which was futile, when Hindenburg put out its first report. Now there seems to be a fresh attempt. Bloomberg reported that Gautam Adani plans to appoint auditors from a top global firm and hire a chief executive officer for his family offices to bring a level of disclosure often associated with listed companies. The founders of the mining-to-media conglomerate are talking to two of the Big Six accounting firms to audit the family offices’ accounts. 

The move hopes to bring transparency into how the Adanis manage their wealth valued at  $105 billion. Reliance Industries did something similar two decades ago by bringing in external auditors and the Bank of New York to manage their share transfers. All the names were reputable and obviously helped their image at that time.

As things stand, if this move pans out, Adanis’ image will benefit, as will the overall stock market. Adani, however, still needs to address the issue of the offshore investors head-on, talk about what was going on and come clean. Maybe the new structure and auditors are the pathway to do that. This will be the best way to put the matter behind and move on.

While the Adanis have hard assets that power their companies, from ports to airports to cement and power, including green power, addressing the financial mystery in ownership and stock behaviour is critical for the long term.

You can accuse the Ambanis of many things, including hosting over-the-top weddings, but no one would question the ownership of their companies or their stock price.

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CO:RELATION

Referral Clamp Down

The National Stock Exchange (NSE) has clamped down on brokerage referral programmes to get new customers. Stock broking companies give incentives from the brokerage they earn to those referring new customers. The NSE circular states that a person referring a client must be appointed as an authorised person by the stock broking company. NSE’s approval is required for such an appointment. That perhaps makes it challenging for discount brokerages to offer incentives for client referrals seamlessly. The stock exchange argues that an unauthorised person could push the client to trade due to such an incentive. 

Stockbroking companies like Zerodha are making representations to authorities about the circular. With share prices at record highs and new investors making a beeline to enter equity markets, regulators are flagging concerns about uninformed investment decisions. In the meantime, shares of Angel One and Anand Rathi Wealth fell amidst an overall positive trend. Share prices of stockbroking companies have had a strong run over the past month.

CORE NUMBER

$2.2 billion

This was the total amount Indians spent on external remittances in June 2024, which is 44% lower than in the year ago period when their spending was $3.9 billion. On a month-on-month basis too, the spending was 8% less. This drop in external remittances has been attributed to the tax collected at source which was hiked from 5% to 20% from 1 October 2023 onwards. Indians are spending less on travel, studies abroad, and maintenance of close relatives.

FROM THE PERIPHERY

—😢 The financial doom of former Indian ed-tech unicorn Byju’s has left more than just its employees in the lurch. Not only have 27,000 odd employees not been paid, but parents of students who spend thousands of rupees for online classes are also worried about recovering their money, Reuters reported. Some parents even took loans to pay for them. Both parents and employees are mulling lawsuits and even street protests, the report said. Even if they pursue either course of action, it could take a long while for any of them to see their money. 

—🏭 Dabur has picked Tamil Nadu’s Villupuram district for setting up a Rs 400 crore manufacturing plant, the state’s Industries Minister TRB Rajaa said in a post on ‘X’. The plant is expected to create over 250 jobs and provide indirect employment especially benefiting farmers from the nearby Delta region. The multi-category manufacturing facility will be the FMCG company’s first plant in southern India and will be set up in the SIPCOT Food Park. 

—📱 Tired of spam messages? The Indian government recently announced that starting September 1, access providers will block messages containing unapproved URLs, APKs, OTT links, or callback numbers. The Telecom Regulatory Authority of India (TRAI) is tightening the rules to fight spam and fraud. By November 1, every message would be traceable, or it would be rejected. If a telemarketer's chain doesn't match up, the message won't go through. Plus, content templates registered incorrectly will be blacklisted, and repeated violations could lead to a month-long suspension of the sender’s services.

—🛢️ India overtook China as the world's top importer of Russian oil in July, driven by a drop in Chinese refinery purchases due to shrinking fuel production margins, The Economic Times reported. Russian crude accounted for a record 44% of India’s oil imports, reaching 2.07 million barrels per day, up 4.2% from June and 12% year-on-year, according to data on Indian shipments from trade and industry sources. In contrast, China imported 1.76 million barrels per day from Russia. India’s demand for Russian oil is expected to grow, provided sanctions remain unchanged.

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