A Noob’s Guide to the Adani-Hindenburg Saga

Abhishek Jha
10 min readFeb 15, 2023


Source: Financial Times

The much famed Mr. Gautam Adani was nicely sitting at the third place in the Bloomberg Billionaires list, the highest ever position achieved by an Indian post-independence. Out of nowhere, on the 24th of January, a guy named Nathan Anderson and his firm Hindenburg Research, sitting in New York, released a report that set Mr. Adani’s happy world on fire. Much has been said about who’s right and who’s wrong, something I don’t plan to comment on. Through the course of your stay on this blog page, you will taste several delicacies, and sightseeing will include several angles from which you can view this colossal event. Thank you for choosing to spend your time here, I hope you have a great stay!

The Hindenburg report was just a trigger or a tipping point; most investors, retail at least, lack the expertise needed to understand the content of the report itself. But the meteoric rise of the Adani group in the past few years had already made people see the company with a lens of suspicion. While they may not be able to understand complicated reports, they certainly do know that companies of that big a size usually don’t grow that fast. So the report just came in and made them believe that their doubts were valid.

The inefficient market

When we talk about markets, it is assumed that the markets are efficient, which means that the market is at all times capable of determining the best price for a commodity(shares in this case) as also that the people(actors) participating in the markets are rational. But incidents like these make us see the flaw in this theory, most participants in the market are normal emotional human beings like you and me who would definitely want to be rational but know that we aren’t. For us to be rational players, the first requirement would be a good amount of understanding of the factors affecting the market, which is something that can’t be expected from all people. And where the brain sees gaps, it calls the heart to pitch in. When we don’t have the base required to act rationally, we have no choice but to act emotionally. Even with knowledge rationality is a rare commodity, even experts are not spared by the tyranny of emotions.

In this case, you could see the share prices of cement giants Ambuja Cement and ACC crash when they were acquired by the Adani Group just a few months back and most likely wouldn’t have been affected by any of the malpractices that the group is being accused of committing. These stocks have crashed mostly because they have the Adani name associated with them. This is a classic example of how the market is perfectly capable of acting irrationally.

Right now, favouring either side won’t be justified as we don’t know who is right or wrong. So as we go on suspecting the Adani Group, we must also see that Hindenburg is a short seller. So they will be clearly benefited if the Adani stock prices crash, and thus, for the time being, their report must be taken with some salt, a pinch or a bag? your choice.

Short selling is essentially you borrowing shares of a company today from someone and selling them, promising that you will buy and return the same number of shares to them on a fixed date in the future. You do this when you believe the price of that company’s share will go down. If it does go down, you make a neat profit. If it goes up, then to return the shares, you have to buy them at a price higher than what you sold them at, which leads to you falling into the pit you dug yourself and making a loss. “The Big Short” is a great movie that explains all of this in a fun way.

Source: Hotstar

Now first things first, is the Indian Economy or the Indian stock market under the threat of a collapse or a big spiralling crisis if the report turns out to be true? Most likely, no (Never say never). Most of the Adani Group’s debt has been taken from foreign institutions. Though not insignificant, the gems of our country, LIC, SBI and mandali of domestic institutions’ exposure to Adani Group are not threatening. For example, out of SBI’s total loan book, only about 0.9% has been given to Adani Group companies. Things will surely turn ugly if Adani Group goes down, but a catastrophe in the banking system is not expected. Did that put your mind to ease? Yes? It shouldn’t be. Adani is a massive player in domestic and government-backed foreign infrastructure projects. As a popular Hindi saying goes, “Hum toh doobenge sanam tumko bhi saath le doobenge’’ which loosely translates to “if I’m going down darling, I’ll take you with me”. In this case, the Sanam or the darling would be the ports, power plants, slum redevelopment projects, etc., that the Adani Group is supposed to develop. So there is a little something to worry about but nothing grave.

Viewing Tycoons Negatively

We have a culture in our country to view our own tycoons in a negative light while we go on admiring the likes of Bill Gates or Jeff Bezos. Elon Musk has a near cult following. This is due to several reasons, but the bottom line is that by default, we view most of our top business persons with suspicion, which is not justified. Those people create jobs and are prominent participants in nation-building and deserve some respect for that.

The Crisis Itself

The primary angle to this crisis is the accusation of fraud, but that’s not it. It is also a PR crisis, and we cannot, of course, forget politics.

This is a huge PR problem for the Adani Group because they were already in controversies not just in India but even abroad in countries like Australia and Sri Lanka. So this accusation makes things much worse because it is easier to believe that someone who is already accused of several crimes can commit another.

Mr. Adani comes from the home state of our Prime Minister, and his rise sort of mirrors the rise of Mr. Modi over the years. He is also regularly seen with the PM and is known to be close to him. So this controversy was a ripe opportunity for the opposition to accuse the government, which boasts an incorruptible image of corruption. Even the parliament happened to be in session, which allowed them to directly target the PM on this matter. Opposition to their credit is milking this opportunity to the fullest. Adani ji ki aapda ko opposition ne apne avsar me badla.

How is the Adani Group dealing with this?

Of course, Mr. Adani and his army of executives won’t be sitting ideally while all hell is breaking loose on them. We can see that the actions being taken by the group are a blend of financial and PR crisis mitigation measures. It started with a several hundred page written reply to the report and calling it an attack on India in an attempt to deflect the target of the assault by bringing out the patriotic spirit of the people. This was followed by a public statement by Mr. Gautam Adani himself, purely an attempt to salvage the image of the group in the eyes of the masses. Masses drive sentiments and can even build political pressure on the government to act against the group. That will lead the group down a vicious spiral of negative publicity leading to further negative publicity, which is something the group would want to avoid at all costs.

Adani firms were always in the news for their high debt levels, debt that had been secured by the promoters (Mr. Gautam Adani and his family) by keeping the firms’ shares as collateral, which is called pledging the holdings by the promoters. This is an important metric that investors look at while making their decisions. With this crisis going on, the Adani group would want to do everything possible to allay the fears of their investors, so they paid some of these loans back before time to send a message that they were in sound financial condition and capable of repaying their loans. They recently repaid $1.1 billion to a set of foreign banks, but according to a report in the Financial Times, this action was triggered because the creditors were asking for more shares against the loan as the value of the shares lying with them as collateral had fallen significantly disturbing their calculations. This repayment, though, seemed to positively impact the market sentiments and caused most of Adani Group shares to rise considerably for two days until MSCI put them under scrutiny, eventually reducing the group stocks’ weightage in their indices and putting them back on the downward slope.

Source: Google Images

Now the Adani group has hired Wachtell, Lipton, Rosen & Katz (ek hi company hai, remember Suits?), a highly reputed New York-based law firm specialising in defence against such activism, as shown by Hindenburg. To inspire trust in the group’s accounting practices, they have hired Grant Thorton, a reputed accounting firm based out of Chicago, to independently audit some of the group’s companies. So this is where it gets real, the group is getting at the task of fighting this matter in arenas like courts.

Retail Investor: The Messiah

In the larger context of the Indian Stock Markets, in the past couple of years, we have seen a dramatic rise of the ‘Retail Investor’, ordinary people like you and me parking their savings in stocks and mutual funds in search of better returns. This has been a boon for our stock markets as more money entered the market, so the companies have got access to a larger pool of capital. And more importantly, retail investors typically stay invested for longer, even in the case of a crisis in the markets. In contrast, foreign investors (FPIs), who have investments in different instruments across the globe, are typically the first ones to exit the market in the event of anything going wrong anywhere in the world. In the past few years, the Russia-Ukraine war and rising inflation were two major causes for FPIs to pull out their money from the stock markets of developing countries like India and park it in the bonds of developed countries like the USA. This is because bond yields (returns) increased, and bonds are much safer than equities(stocks). In 2022, FPIs sold ₹1.21 lakh crore worth of Indian stocks. All this selling was compensated by our retail investors, who pumped their savings into the market. Had they not done that, our stock market would have been in bad condition. It’s simple demand-supply, if FPIs had sold off the shares without the retail investors demanding to buy them, the stock prices would have crashed.

So we want to encourage retail investors, but if we take a look at the recent events, there is a fear of a recession in the west, new age startups like Zomato, Paytm, Nykaa disappointed the investors with colossal crashes, LIC IPO turned out to be a loser and now the Adani crisis. All of these could spook retail investors and might even discourage them from investing further. This is where we expect authorities like the SEBI to step in and take steps to protect retail investors. The government, on 13th February, said in the Supreme Court that they have no objection to the court ordering an investigation in this matter. It would have been better for them to take the lead and begin an inquiry rather than putting the onus on the court.

If the Hindenburg report turns out to be true, this will be the largest corporate scandal in Indian history, and even one of the world’s largest and possibly have repercussions for the ruling party. If the Adani Group manages to come out clean, they will have fought off an assault that has wiped over half of their entire value. Either way, this will be an exciting space to watch, an event that will script history. In due course of time, business school students will be reading case studies on this, whether in their Crisis Management class or their Corporate Governance Fraud class remains to be seen.



Abhishek Jha

MBA| Computer Engineer | Reader | Writer | Speaker…