Short seller sharpens a divide in India’s market
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to remove word echo in last paragraph.
By Shritama Bose
MUMBAI, Aug 16 (Reuters Breakingviews) -The strength of India’s institutions is in focus after Hindenburg Research's latest attack. The short seller says the country's securities watchdog chair Madhabi Puri Buch is unfit to probe Gautam Adani's empire in connection with allegations of fraud the U.S. fund levelled last year wiping $150 billion off the infrastructure group's market value. The reason, it adds, is that she once held a stake in an offshore fund linked to the tycoon's brother.
Markets remained calm after a prompt defence was detailed by both Buch and the Securities and Exchange Board of India. Words of support also came from Prime Minister Narendra Modi’s Bharatiya Janata Party. Buch, a former banker, says the investment in question pre-dated her joining SEBI in 2017, and that the fund never invested in any Adani bond, equity or derivative. The most embarrassing detail, perhaps, is that it highlights rich Indians' desire to route investments via offshore vehicles. This is a trend New Delhi wants to curb.
Hindenburg also failed to shake the market on this occasion because Buch has carved out a reputation of being a no-nonsense rule-keeper willing to take tough decisions when required, especially on protecting small investors. In July she proposed tighter rules for the derivatives market, where surging retail participation is becoming a major concern, and greater regulation of a new crop of online influencers peddling financial advice.
Even if many local investors think India's probe into companies including Adani Enterprises ADEL.NS and Adani Green Energy ADNA.NS could be more thorough, they retain some confidence in the regulator. It helps that domestic investors drive cash equities volumes and dominate ownership of India's market; foreigners’ holdings stood at a 12-year low of 18% as of March, per National Stock Exchange data.
Foreigners will be harder to win over, and are more likely to judge India's credibility on how it deals with this one big Adani case. There are two obvious problems here: SEBI's probe into the conglomerate, which denies any wrongdoing, is still ongoing and the regulator itself has already gone on the attack by serving Hindenburg with a summons. So while Adani's share prices have largely recovered, India is unable to fully move on.
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CONTEXT NEWS
The Securities and Exchange Board of India on Aug. 11 said its chair Madhabi Puri Buch made relevant disclosures about holdings of securities and their transfer from time to time and recused herself in matters involving potential conflicts of interest.
The regulator issued the statement after U.S. short seller Hindenburg Research on Aug. 10 said Buch could not be trusted as an objective arbiter in an ongoing probe into issues related to the Adani family’s infrastructure empire.
Documents show Buch and her husband “had stakes in a multi-layered offshore fund structure with miniscule assets” and “in the same entity run by an Adani director and significantly used by Vinod Adani in the alleged Adani cash siphoning scandal,” Hindenburg said.
Buch and her husband said in a statement on Aug. 11 that their investment in the fund was made in 2015, before she joined SEBI, and redeemed in 2018. The fund in question never invested in any bond, equity, or derivative of any Adani group company, the couple added.
Foreigners own a shrinking share of Indian equities https://www.reuters.com/graphics/BRV-BRV/byvrqarxape/chart.png
Editing by Una Galani and Katrina Hamlin
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