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The South Asian Insider

12 firms gained from short selling in Adani Group shares: Report

(News Agency) - Around a dozen companies, including foreign portfolio investors (FPIs) and foreign institutional investors (FIIs), based in tax havens, have been identified by the Enforcement Directorate (ED) as the "top beneficiaries" of short selling in Adani Group shares, reported The Indian Express.
The ED shared the information with the Securities and Exchange Board of India (Sebi) in July, following its preliminary investigation into the Hindenburg Research report and the resulting market crash.
It may be noted that short sellers profit by borrowing and selling shares with the expectation of buying them back at a lower price later.
Short positions taken just before Hindenburg's report
The ED's findings, as highlighted in the Indian Express report, revealed that some of these short sellers initiated positions just 2-3 days before the publication of the Hindenburg Research report, while others were engaging in short selling for the first time.
The agency's investigation disclosed that three of the companies are India-based, with one being the Indian branch of a foreign bank. Four entities are situated in Mauritius, and one each in France, Hong Kong, the Cayman Islands, Ireland, and London.None of the FPIs/FIIs have revealed their ownership structures to the Income Tax authorities.
For example, one entity was incorporated in July 2020 and remained inactive until September 2021. In just six months from September 2021 to March 2022, it claimed an income of Rs 1,100 crore on a turnover of Rs 31,000 crore.
Another global financial services group, operating as a bank in India, reported minimal earnings in India but a substantial income of Rs 9,700 crore as an FII without paying any income tax.
A Cayman Islands-based FII, listed among the 'top beneficiaries', had previously admitted to insider trading and paid a $1.8 billion fine in the US. This FPI initiated a short position in Adani Group shares on January 20 and increased it further on January 23. A Mauritius-based fund engaged in short selling for the first time on January 10.
Among the 'top short sellers', two Indian companies were identified - one registered in New Delhi, against whose promoter Sebi had taken action for misleading investors and stock market manipulation, and the other registered in Mumbai.
The ED had presented its findings to an Expert Committee set up by the Supreme Court to investigate regulatory failure in relation to the Adani Group. The committee highlighted "potentially violative selling by specific parties" and suggested Sebi should probe such actions.
Sebi's recent update on Adani-Hindenburg probe
Sebi, in its recent submission to the Supreme Court, stated that 22 investigation reports were finalized, including one related to trading patterns or short positions of certain entities in Adani Group companies around the time of the Hindenburg report release.
The market regulator awaits further information from external agencies/entities.
The ED's conclusion suggests that FPIs and FIIs may be acting as brokers for larger overseas players, rather than being the ultimate beneficiaries of the gains from short selling.