Hindeburg Effect: Adani vs Hindenburg and India

The Hindenburg Report on Adani Group has major implications not just for Adani, but for entire Indian economy and the people of India. We can call it “Hindenburg Effect” on India. While Indian economy is among the only few bright spots amid global recession, the Hindenburg report has literally blown away India’s capital markets. Here is short analysis of what Hindenburg Effect is and how it is shaping the current investment climate in India.

Before we start, we need to develop the context on which we are talking about Hindenburg Effect.

Indian economy and Adani

India’s economy is expected to grow at over 6% rate according to International Monetary Fund (IMF). The much needed infrastructure push given by the Indian Government and announcement of major projects in almost all sectors is expected to give a boost to private investment and public-private partnership.

The government sector companies are no way capable of executing projects within deadlines, neither they are capable of investing the money required for handling the big projects. We have seen that in the history of last 75 years. Corruption and management issues in PSUs instead increase the cost of projects manifold. Adani Group companies are expected to have a major share in various big projects on energy, ports, railways, food processing industries etc. And it has the capability to deliver on time.

Overseas projects of Adani Groups

There used to be a time when we used to look for overseas companies to invest in India and only a few Indian companies had presences in overseas markets, that too for a certain sectors like pharma and automobile.

Adani changed this scenario by taking up various strategically important projects in Bangladesh, Sri Lanka, Africa or the recent Hafia port in Israel. So, an increasing presence of Adani Group companies did actually help India grow its influence overseas.

While Adani’s wealth increased tremondously, it is also true that he need that kind of wealth to excute the projects he has. Expecting government sector companies to take up such projects would be too much to ask from them as most of these companies are marred by red tapping, slow process and project delays leading to increased cost.

Now, after a a report by US based financial firm, Hindenburg Research LLC who is a well known short seller, Indians have started selling out their shares from Adani’s companies without any second thought. The perception that even a shit from west is gold still dominates in India.

Here we are not claiming that Adani does not have any management issues or corruption, what we are saying is that if a report comes from west it carries a lot of credibility. Before Hindenburg, many Indian investment experts cautioned about Adani Group and called it a big bubble, but no one really cared about it till the time a report came from west.

The Hindeburg Effect

  1. A majority of Indian investors are retail investors (common man) who invest their hard earned money in shares and mutual funds. And, these people are losing a big portion of thier wealth. Forget about institutional investors for a second since they are experts and well seasoned. If they have lost some money they know how to recover it from the stock market only. So, clearly, the common man is at receiveing end and big loser.
  2. Now, about Indian economy. Even though the government may say that Indian economy is resilient to Adani stock crashes, it is true that the fall of such a big private player is a loss for India economy. It will affect all sectors of the Indian economy wherever Adani is involved. The result of it can be in the form of less investor confidence, lower than expected growth and most importantly the low confidence of private sector companies on Indian capital market.
  3. Thus, an Indian economy under the effect of Hindenburg report will require a lot of effort to revive itself at a time when COVID-19 pandemic has already raised the fear of global recession.
  4. The strategic projects held by Adani overseas are also at risk now. And, with increasing scrutiny of Adani Group, it will become more difficult for it to run its overseas work smoothly.

To conclude it, we can say that the current events related to Adani are not benefiting any in India. If Adani has accumulated wealth through unscrupulous means or manipulated stock market, it is failure of regulatory agencies and the cost of it is being borne by the country.