Good morning. The latest salvo fired by activist short-selling firm Hindenburg over the weekend, this time targeting SEBI Chief Madhabi Puri Buch kept the pot boiling with press statements being issued overnight by different stakeholders. While the broader markets ended flat at the close of trade, majority of the Adani group stocks ended in negative territory. But are the allegations against the SEBI chief a side story? And is it time to put the spotlight back on the Adani group. Read to know more. 

Also, starting this week, we bring you a weekly column by senior journalist T K Arun who will be looking at major economic and business themes emerging through the news cycle and its impact on the country. This week, it is about the crisis in Bangladesh and its impact on India. 

THE TAKE

Why The Hindenburg Revelations Are Not About SEBI But The Adani Group

It is clear to most now that the major issue in the latest Hindenburg salvo is not the Sebi chairperson Madhabi Puri Buch but it’s Adani.

Whether or not the Sebi chairperson should have disclosed more details of her past investments is something that will soon be settled, one way or the other.

To reiterate what The Core said yesterday - the SEBI chief should invite an inquiry, disclose proactively all her personal and family assets on the Sebi website and there is a good chance everyone would have moved on.

But the crossing of wires and paths, even if inadvertently, with Adani's investments in an offshore fund, brings the needle back to Adani.

The Adanis fully realise that there is a problem in the public perception of them and their stocks since January 2023, when the first Hindenburg barrage was fired. While they have managed to get through a lot and the stocks have bounced back, the stigma still holds.

As is evident from the manner in which Adani stocks fell on Monday following Hindenburg’s second instalment, a day when the rest of the stock market was flat at the close of trade. 

Last week, Bloomberg did a fairly detailed video cum text report on the group, evidently with full access - including to all the next generation leaders and inheritors - showing a willingness to answer all the tough questions.

To be fair, the tough questions were asked but the Adanis were not grilled and perhaps the interview would not have happened if it came to that. But the Adanis appeared to have made a somewhat sincere attempt to open up to an independent news organisation, as opposed to speaking to NDTV who they own.

This also tells you why it is important to be seen to be questioned by independent media and journalists, large or small and not, for example, regurgitated content disseminated by blogs run by stockbroking houses. Or media that is owned by parties whose interests may conflict or clash with the news in question.

Now, to come back to the Adanis.

There is one key problem from day one - the unclear ownership of overseas companies that own shares in Adani companies in India leading to concentrated holdings here which among other things, creates artificial scarcity. 

The other was to do with accounting issues which may not be the major one. These companies or funds are sitting outside India and thus not subject to Indian jurisdiction as such. Attempts to seek information, assuming they were made, have come to nought. The good news is that post this episode, Sebi made it mandatory for these overseas funds with concentrated positions, among others, to share information on ultimate beneficial owners. 

But there is no way to force an entity sitting outside to reveal something it does not want to or in any case, you have to believe what they tell you.

By the way, SEBI has not spoken on the Adani issue per se, ever since. There is no way of knowing where the investigations have gone, what they have uncovered, if anything. The SEBI problem clearly went away but the shadow has not.

This is something that Adanis must realise will come back to haunt them again and again.

And the only way to address it is to speak freely and openly and respond to questions on the mechanics of these investments and other charges in the original Hindenburg report.

JANUS VIEW

Is There An Opportunity For India In Bangladesh’s New Politics?

Even as the Indian economy aspires to become atmanirbhar (self-reliant), last week’s events conclusively show that the financial sector, at least, is thoroughly bhoogolnirbhar (world-dependent). A meltdown of American tech stocks, central bank action in Japan, and news of slowing job creation in the US triggered panic selling in global bourses. The contagion spread to India as well. And, despite projecting inflation in India to stay well below 5% throughout the current fiscal year, the Monetary Policy Committee of the RBI decided to keep the policy repo rate unchanged at 6.5%, thanks to geopolitical and other global risks.

The other major development with a bearing on India has been, of course, the political upheaval in Bangladesh, with longstanding Indian ally Sheikh Hasina being forced out of both office and the country, and an interim government taking over. Sheikh Hasina, as prime minister, had put an end to assorted militant groups in the Northeast setting up base in Bangladesh and staging raids across the border in India. The Islamist Jamaat, all too happy to function as the local cat’s paw of Pakistan’s Inter-Services Intelligence, had been reined in by the Hasina regime. She also resisted the consistent attempt by Beijing to rope her country into an alliance unfriendly, if not overtly inimical, to India.

This has led to sections of the Indian establishment to see the post-Hasina regime in Bangladesh with hostile suspicion.

CO:Relation

Tata Consumer shares have been under pressure since it announced the rights offer. The company is raising close to Rs 3,000 crore to retire debt. Despite strong growth in sales and operating profits and margins, the company’s net profit growth slowed. According to the offer document, the company has flagged a liquidity risk due to contractual liabilities maturing within a year to the tune of Rs 5,766 crore. The company has funded acquisitions of Capital Foods, the maker of ‘Ching’s Secret’ and ‘Smith & Jones’ and Organic India through commercial paper. The market concern is reflected in the relative underperformance of Tata Consumer shares in comparison to the industry in 2024. The rights issue should help reduce the burden. Tata Consumer also operates a joint venture with Starbucks with 421 stores. The offer document reveals that the losses widened in the financial year 2023-24.

PODCAST

Markets Withstand Hindenburg, Adani Stocks Don’t

On Episode 362 of The Core Report, financial journalist Govindraj Ethiraj talks to Aditi Nayar, Chief Economist at ICRA, as well as Shiv Putcha, Founder & Principal Analyst at Mandala Insights.

• Markets withstand Hindenburg, Adani stocks don’t

• Inflation is down to 3.5%, why you shouldn’t celebrate yet

• Bharti buys a 25% stake in iconic UK brand, British Telecom

  Listen online

CORE NUMBER

$2.43 billion

This is the total market value that was wiped off Adani Group’s stocks at the end of trading day yesterday as Hindenburg Research claimed foul play by SEBI's former chair in the company leading to investor anxiety. Amongst the top losers of the day were Adani Ports and SEZ whose share value dropped by 2.33% and Adani Enterprises which closed 1.46% lower. However, this is much smaller compared to the $13 billion hit the company’s stocks took when the Hindenburg Research allegations first resurfaced on Monday. 

FROM THE PERIPHERY

—💸 Bharti Global, the international investment arm of Bharti Enterprises, has become the largest shareholder in BT Group by acquiring a 24.5% stake from Altice UK for approximately US$ 4 billion (Rs 31,850 crore). This investment is among the largest outbound deals by an Indian company. Bharti Airtel's market cap is Rs 8.26 lakh crore, higher than BT Group's Rs 1.39 lakh crore. Facing over US$ 60 billion in debt, Altice was pressured to sell assets, including its stake in BT, which was heavily financed through loans and derivatives. Bharti Enterprises, also the owner of Bharti Airtel, plans to first acquire a 9.99% stake and then seek regulatory approval to purchase the remaining 14.51%.

—🏦 Japanese lender Sumitomo Mitsui Banking Corporation’s (SMBC) CEO Akihiro Fukutome is reportedly visiting India this week to discuss buying a stake in Yes Bank. SMBC is considering a valuation of about $5 billion for a 51% stake in the private lender, according to a Mint report which cited sources. After a near collapse and central bank-orchestrated rescue in 2020, Yes Bank has slowly been bouncing back. In the last one year, the lender outperformed bank nifty growing over 45% compared to just under 15% returns from the benchmark index. 

—🧑‍⚖️ French liquor giant Pernod Ricard’s legal head in India has resigned from the company and will reportedly join Google in November as its top India counsel, according to a Reuters report. Her exit comes at a time when Pernod Ricard is facing several legal and regulatory challenges in India, one of its key markets, including criminal proceedings. Google too, has been facing several anti-trust investigations, including in India. The US tech giant has a pending case challenging a verdict by the National Company Law Appellate Tribunal (NCLAT) upholding a fine levied on it by India’s antitrust watchdog.

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