Should investors brace for a sell-off on Dalal Street?

Should investors brace for a sell-off on Dalal Street? After US-based short seller Hindenburg Research alleged Sebi chairperson Madhabi Puri Buch and her husband Dhaval Buch's connections with the alleged money siphoning, fraud, and financial irregularities by the Adani group, the husband-wife duo denied the charges, describing them as "baseless" and "devoid of any truth", and vowing to disclose "any and all financial documents to any and every authority that may seek them", including those that "relate to the period when we were strictly private citizens".

Describing the turn of events so far as a "serious matter for the market", Zee Business Managing Editor Anil Singhvi said that "market participants will be closely tracking headlines on the matter as transparency is very important for the market". 

It will be a tough call whether the Sebi chairperson should stay at the helm of the powerful institution that Sebi is at least until any likely investigation is underway, said the market guru, adding that the news may affect both investor sentiment and wealth.

"Doubts will likely emerge among investors as the news follows Sebi's clean chit to Adani... Hindenburg had shared a cryptic message on X (formerly Twitter) that it would come up with 'something big' on India, but nobody would have thought about possible connections between the Sebi chief and Adani," said Singhvi. 

"It can spell big repercussions for the market... Adani stocks in particular will be closely watched out for," he said. Although the Sebi chairperson has asserted that she is ready to reveal "any and all" documents needed in relation to this matter, it may still be a big setback for Dalal Street, the market guru added. 

What are the allegations in Hindenburg report?

In a blog post released on its website, Hindenburg Research late on Saturday alleged that it suspects that Sebi's unwillingness to act against the Adani group may be because its head Madhabi Puri Buch, along with her husband, had stakes in offshore funds linked to the conglomerate, an allegation that the Sebi chief denied categorically, calling the charges "baseless" and a "character assassination attempt".

Hindenburg alleged that Buch and her husband had undisclosed investments in obscure offshore funds in Bermuda and Mauritius, the same entities allegedly used by Vinod Adani - the elder brother of group chairman Gautam Adani - to round-trip funds and inflate stock prices.

In October 2020, Sebi began a probe into the shareholding structure of Adani group companies after red flags were raised over the high concentration of foreign holdings in the conglomerate's listed companies. Probe was launched to determine if the foreign investors were genuine public shareholders or acting as fronts for the promoters.

Last year, Sebi had told a Supreme Court-appointed panel that it was investigating 13 opaque offshore entities that held between 14 per cent and 20 per cent across five publicly traded stocks of the conglomerate. It hasn't said whether the two incomplete probes have since been completed, something which Hindenburg used to attack the market regulator.

On Saturday, Hindenburg claimed that Madhabi Puri Buch and her husband invested in offshore entities that were allegedly part of a fund structure managed by India Infoline, and in which Vinod Adani also had investments. These investments reportedly date back to 2015, well before her appointment as Whole-Time Member of Sebi in 2017 and her subsequent elevation as chairperson in March 2022. It said that the Bermuda-based Global Opportunities Fund, which allegedly was used by entities connected to Adani Group to trade in shares of group companies, had sub-funds, in which Buch and her husband were investors in 2015.

The Buchs categorically rubbished the allegations made by Hindenburg. In a joint statement, they strongly denied the "baseless allegations and insinuations" made in the report dated August 10. "The same are devoid of any truth. Our life and finances are an open book. All disclosures as required have already been furnished to Sebi over the years. We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them. Further, in the interest of complete transparency, we would be issuing a detailed statement in due course," they wrote. 

With inputs from agencies