Alert! A shocking 23% decrease in the value of Adani Group shares was reported in a single day

Hindenburg, a US-based research & investment firm, issued an exposé titled "How the World's 3rd Richest Man is Pulling the Largest Con in Corporate History". After its release, we witnessed a rapid decline.

Why did the share drop after the report was released?

What can happen in the Indian financial market due to this drop?

First, let's see what Hindenburg is.They claim to be an investment and research firm. They concentrate on short-selling.

What is short-selling?

Let's see an example.

Currently, a company's share is priced at Rs. 100, however it is predicted to decline in the forthcoming days. It is going to change to Rs. 50 or Rs. 40. Today, when the price of the company's share is high we can sell the stock, and we can buy back when the price is lower.

Let's assume that the price of the share is Rs. 100. But if we buy it for Rs. 50, we can make a profit of Rs. 50 from a share. This is called short-selling. This is how the company concentrates on short-selling. That is, when the price of the company's share is not going up, but when the price of the share is going down, or when it is going down, these companies make a profit. They claim to be an investment and research firm that concentrates on short-selling.

What kind of research do they do?

Companies that are vulnerable, that is, companies that run malpractice or run scams, or companies that are likely to go down in the future due to poor performance, conduct research on such companies. If they are able to find something bad in those companies, detailed reports will be published on it. In addition to this, when the stock price of those companies goes down, they short-selling there and make a profit.This is called Hindenburg.

So if you look at their activities in the last three years, they have been able to publish such reports on Twitter and Tesla. They have also been able to reduce the stock price of such companies and make a lot of profit. The most important company in this was a company called Nikola. It was a company that manufactured small trucks. So they published "lies" about the performance of their trucks. As a part of that, their stock price went up a lot. This was discovered by the Hindenburg company and their detailed reports were published on it.

Thus, the net worth of that company, which was worth $34 billion, is now worth only $1.3 billion. So you can see that they have done a lot of such activities in the past. The latest example of this is the part of this report by Adani Group.

So, two kinds of opinions are coming forward related to the company called Hindenburg.

The first opinion is that they are doing malpractice. That is, by submitting reports against companies, they are trying to reduce the stock price of such companies and make a lot of profit. Adani Group is one of the largest prey in this. But the other opinion is that they are doing the right thing. They are bringing in such companies with vulnerabilities or scams and making a legitimate profit from it.

Let these two opinions stand there. Let's see what they have said in the report related to Adani Group. There are more than 32,000 words in this report. Also, they have put forward 88 questions related to Adani Group. The most important point mentioned in this report is that Adani Group is a business organisation that has created a lot of wealth in a short period of time. To be precise, Adani Group has grown this much in the last three years after 2020.

We can see this in the public domain. We can see that the value of some stocks related to Adani Group is increasing from 12 times to 20 times in this period. Therefore, the personal wealth of the chairman of this group and the people who work under this group has increased by about 85% in their personal wealth in the last three years. One thing to be understood clearly is that 2020 is a year of great devastation in the world due to COVID. Even in a time when many stock markets and important businesses in the world have collapsed,

How are the companies under this company or related to Adani Enterprise making such a big profit?

We can see that all the shareholders of the major companies under this business group are in this family. The net worth of the people in that family in the last three years has increased to 120 billion dollars. It can be seen that the growth of 100 billion dollars in that family has happened in the last three years. When we see all this, a question that naturally arises in the minds of people is

How is this company and the people under this company making such a big profit during such a negative situation?

This question is not only asked by the Hindenburg report, but it is a question that arises in the mind of any ordinary person. The most important thing behind this growth as shown by this report is as follows

This is debt-fueled growth.

That is, instead of this company growing slowly, they are taking out a large amount of debt, and using that money to grow these companies and their assets. If we look at a report related to the companies of Adani group, there is a figure called current ratio. (Current ratio is current assets divided by current liabilities). That is, the current assets in this company, when it is divided by the company's debts or liabilities, we get the current ratio. If the current ratio of a company is 1, what does it mean? The company has as many assets as the debts taken by that company. It means that all the debts in that company can be paid off quickly. If the current ratio is above 1, it means that the company has more wealth than the debts taken by this company. If the current ratio is less than 1, it means that the company has more liabilities than total assets in this company. If we look at the 7 companies listed in the Adani group, we can see that the current ratio of 5 of them is less than 1.

For example, if the current ratio of Adani Green Energy is 0.5, which means that, the debt taken by them is double their total assets. This report shows that this is not sustainable growth due to the growth from debts.

Not only the Hindenburg report, in August 2022 itself, an international group called Fitch, related to Adani groups, released a report saying that it is debt-fueled growth and can cause problems in the future. Not only this, if we look at the news related to Adani groups, they are planning an FPO, which is a follow-on public offer. That is, the shares of their companies are available to the public. But the shares are not available to the public. We can see that the shares are still in the hands of the owners of the companies. So, the shares in the hands of the owners, if they make another part of it available to the public, it is called a follow on public offer or FPO. So, there are many reasons for companies to come up with such FPOs. One of the most important things is to reduce their debts. That is, the money they get through the FPO is used to pay off debts. So, the report says that Adani group is going for such an FPO move and that is indicative of their debts.

Now, related to the increase in the share prices of Adani group, this report says that another problem is a float issue. When we list a company in the share market, we should understand what a float is. I said earlier, even if the company has the opportunity to list all its shares in the share market, not all the shares will be available to the public. Some of the shares will be in the hands of the promoters or owners of the company. So, a float is the percentage of shares available to the public and in the hands of the owners.

For example, I have a company. I have 50% of the shares of this company in my hands. If I list only 50% of the shares and give it to the public, we can say that 50% is the float of this company. Now, if we look at the case of companies listed under Adani group, it can be seen that 75% of the shares of most of the companies are in the hands of its owners or promoters. That is, only 25% of the shares are available to the public as a float. So, 25% number also has a specialty because SEBI (Security and Exchange Board of India) is in charge of the share market. So, according to the rule of SEBI, at least 25% of the shares should be available to the public as a float. So, the Adani group is moving forward at the minimum percentage of that.

So, what are the implications of moving forward with such a float?

The price of a share in the share market increases or decreases mainly according to its demand and supply. If a lot of people buy a share, its demand will increase and the price will go up as a part of it. The opposite will happen. If a lot of people sell the share, its demand will decrease and the price will go down. So, in all our stock markets, there was a good demand for Adani stocks. Demand was rising due to many things. But the supply was very low. Because 75% of the stocks are in the hands of the promoters. If they decide not to sell it, no one can buy it. So, the demand is increasing, but the supply in the share market is low. Because of that, the price of these shares skyrockets and goes up in a very good way. So, we can see that there is nothing illegal in this case. But the report says that Adani group is running a scam here.

For example, 75% of Adani group's stocks are in the hands of the promoters. Only 25% is available to the public as a float. But most of these 25% stocks are bought by some companies in Mauritius and Cayman Islands.

What is the specialty of these Mauritius and Cayman Islands?

These are the places where rich people hide money or use it to keep fake money. So, most of the companies in these places are shell companies. Which means these companies would only be on paper and mostly used to run scams.

What happens when most of the shares are in such companies?

As I said earlier, 75% of the shares are in the hands of the promoters. It is never available to the public. Imagine that 15% of the shares are in the hands of such shell companies. 75% plus15% is 90%. Only 10% of the remaining shares can be bought and sold as a float. As the number of shares available to the public is very less, even if there is a slight increase in the demand of these companies, the share price will go up by 10 times due to the lack of supply.

According to the Hindenburg report, there is a company called Montessori Investment Holdings in Mauritius. That company has 5 sub-companies. These 5 sub-companies are investment companies. The capital of these companies is 150-160 billion American dollars. It can be seen that 90% of this capital is invested in stocks related to Adani Group. The report also shows that the Adani family has a good financial and marital relationship with the head of the company.

In summary, 25% of the float is maintained due to the mandate of SEBI. Most of that 25% is under the head of the same company. As the number of shares available to the public is very less, even a slight increase in the demand of these stocks will increase the stock price. When the stock price goes up, not only the shares that are bought and sold, but all the shares in this company will also go up. Since most of the shares are in the hands of the head of the company, their net worth and wealth will also go up. This is what is happening here according to the Hindenburg report.

Another point that comes out of the Hindenburg report is that the past of many people involved in this company is very shady. That is, the people involved in various scams and cases are the ones who work in this company. Many people involved in diamond fraud, tax evasion, etc. are also there among owners of this company. Similarly, this company is working with a person named Chetan Parekh to pump the shares of this company.

Chetan Parekh is a person who has done a pump and dump scam in the Indian stock market and has been proven to have banned SEBI from the Indian stock market. Sujatha Dalal tweeted last year in February that this company is working with him. Sujatha Dalal is the one who brings out Harshad Mehta's scam. So, the Hindenburg report is using these points to prove that the people working in this company are involved in such scams.

Another important thing mentioned in this report is that there are a lot of issues in the auditing of the companies in the Adani group. For the independent auditing of the companies in the Adani group, they use some new auditing firms that have no work experience and no credibility. Some examples of this are also provided a senior chartered accountant who works with only four people, and a small firm with three chartered accountants who have passed in recent years, auditing this company with billions of dollars, is shown in this report as some suspicious things. So, the Hindenburg report has said a lot about the companies in the Adani group, their activities, and the growth of their stock price.

So, when such allegations come out, the investors who had invested in this company's shares will lose their trust. As a part of that, the demand for this company's shares will go down. As a part of that, such a big stock market crash happened to the Adani group. So, when such reports and things came out and such a big issue arose the Adani group responded to this. These are all baseless allegations. As a part of that, the Adani group is planning to sue them. When such a situation was put forward by the Adani group, the firm Hindenburg said, you can go forward with any case. If possible, you should conduct such cases in the courts of America. Because when cases are conducted in the courts of America, many important documents related to this company will have to be put forward. It can be seen that they have put forward such a challenge. So, if such a situation is put forward if the stock price of the Adani group goes down further, let's see what all implications it will have on our economy.

So, the Adani group is a company that has contributed the most to the Indian economy or the Indian stock market. When all the stock markets and businesses in the world were destroyed as a result of COVID, the most important reason why the Indian stock market was holding up was the performance of the Adani group's companies. So, if their stock price goes down, there is a possibility that it will affect the Indian economy or the stock market in a small way. Similarly, there is a possibility that there will be some problems for the Indian banks related to this.

As I said earlier, it is a debt-fueled growth of the Adani group. That is, this group has taken a lot of loans from the major banks in India. When their stock price goes down, a large part of their assets will be lost.

So, will the Indian banks get this loan back?

Is there a possibility for the banks to go into a big crisis?

Not only that, looking at the mutual funds in India, it is surprising to see that there were no stocks of this Adani group in many of their portfolios. So, I don't know if it is because there is no trust in these stocks or because there is no float. Most of the mutual funds in India did not have a large share of the Adani group. So, it is said that there is little chance of this problem affecting the mutual funds directly.

I would like to say one thing. I only explained the allegations and evidence they have put forward. The allegations are not proved yet we will have to wait till it's proved.