Adani-Hindenburg Supreme Court Panel Report

May 20, 2023
Posted by: OptimizeIAS Team
Category: DPN Topics

Adani-Hindenburg Supreme Court Panel Report

Subject :Economy

Section: Capital Market

Context: Supreme Court on Friday (May 19) made public the report of the court-appointed expert panel in the Hindenburg-Adani row case. SEBI) is yet to submit its report, the expert panel in its report disclosed that SEBI has been investigating the ownership of 13 “opaque” overseas entities related to Adani since October 2020.

The committee covered the following:

Market Volatility: Report found high volatility in the securities market due to the Hindenburg-Adani row.
On the first issue, the report says that while “there was certainly high volatility in Adani stocks after publication of the Hindenburg report”
Investor Awareness: agreed with SEBI’s steps on ensuring investors are making informed decisions, but questioned whether there is too much information for the average investor.
Regulatory failure if any that led to the conclusions drawn by the Hindenburg report. panel said that SEBI is looking into whether Adani has floated regulations in three aspects.
- Minimum public shareholding: Sebi regulations require a publicly listed company to have a minimum of 25% of its shares to be held by the public. To assess this SEBI is looking at the ownership of certain portfolio investors. (of 13 overseas entities, 12 are foreign porfolio investors)
- Related Party transactions: SEBI (Listing Obligations and Disclosure Requirements) requires disclosure of transactions by listed companies with related parties that benefit related party (ie. Adani here). No comment as investigation still on.
- Price Maipulation: No evidence yet. SEBI’s active surveillance framework that tracks high price and volume movements has not found any manipulation till now, although several alerts were triggered, even before the Hindenburg report.
The 6 member committee comprised of two former justices, one former SBI chairman, one securities lawyer and Infosys co-founder Nandan Nilekani.

Why the issue is important: Some fundamentals

Stock market ‘Efficiency’’ requires that the price discovery, is determined by publicly available information only. In a ‘perfectly efficient market’, no one can make extra profits than any other. Related party trading and insider trading go against this principle.
Volatility is the name for variation in the price during a period. Abnormal volatility, is indicative of speculation or any other unfair practice, and is unhealthy from investor confidence point of view.
The 25% holding to be with public is a measure to ensure that big stakeholders cannot manipulate price of a stock.
The role of market regulator SEBI is most important in ensuring all of the above, hence concerns about regulatory failure.