There was relief mixed with triumph in the Adani Group’s response to Wednesday’s Supreme Court (SC) verdict on petitions seeking an independent probe of alleged capital-market rule violations by the conglomerate. “Truth has prevailed,” said the group’s chief Gautam Adani on X, expressing gratitude for “those who stood by us.” The apex court declined demands for a fresh probe led by a Special Investigation Team reporting to it or the Central Bureau of Investigation, as it found no reason to doubt the Securities and Exchange Board of India’s (Sebi) ongoing investigation ordered by it after allegations of fraud, stock manipulation and more were made in a report by US short-seller Hindenburg and roundly denied by Adani almost a year ago. The SC found no merit in conflict-of-interest charges against members of an expert panel the court had tasked with checking the regulatory set-up, and cautioned against relying on media reports to question Sebi’s probe. The SC rejected calls for ordering Sebi to revoke tweaks made in the Foreign Portfolio Investor and Listing Obligations and Disclosure Requirement Regulations, which had allegedly formed a loophole for violations of our 25% public shareholding rule by means of stakes kept under hidden control that could have made Adani stocks manipulable. The SC also directed Sebi to conclude within three months the two last parts of its probe.
Sebi still needs the help of foreign regulators and agencies to uncover the ultimate financial beneficiaries of offshore entities alleged to have run rings around market rules whilst trading Adani shares. Sebi’s second unfinished aim is to spot illegality in any short-selling that occurred during the Hindenburg crash in the group’s shares last January. The US short-seller had sought to offer a circumstantial case of stock puppetry with a plotted outline of dots which the US-based Organized Crime and Corruption Reporting Project later tried to connect with its own spadework, but since the SC was clear that investigative authority rests solely with Sebi, Adani trading counters lit up in celebration. With the group’s shares soaring to log double-digit percentage gains, the market value of all its listed shares had topped ₹15 trillion by day-end. This is still below its pre-Hindenburg peak of over ₹19 trillion, but a sharp recovery from the ₹5.8 trillion it had dropped to. The post-verdict upshoot can be attributed to investor confidence in Sebi’s conclusion amounting to an eventual let-off, given that no prima facie evidence of wrongdoing has been reported either by the expert panel or Sebi so far, even though neither has achieved case closure.
If markets have sensed it right, then little further can be expected from Sebi efforts that may find the Adani Group in breach of compliance. Yet, even with no direct evidence found and the low likelihood of an adverse order against the group, the Hindenburg episode has given investors a disturbing sketch of what’s plausible in our capital markets if oversight limitations mean prices can be rigged from behind opaque screens that are kept safely out of reach offshore. For stock markets to play their proper role in an economy’s capital allocation, their price-discovery process must be a trusted function of demand and supply driven by earnest analyses of profit prospects. And for the law of large numbers to work, at least a quarter of a firm’s shares actually need to float. If regulatory gaps need to be plugged to keep Indian bourses free of rule-skirting scandals, let’s do it.
