Sebi says only one probe remains in Adani-Hindenburg Research matter

The markets regulator, Securities and Exchange Board of India (Sebi), on Sunday asked investors to exercise caution and due diligence before reacting to reports, such as those from American short-seller Hindenburg Research. It said investors should be aware of the disclaimer in Hindenburg Research’s report, which notes that the firm may have short positions in the securities it discusses.

Also, in an update on the ongoing probe into the Adani group matter, Sebi disclosed that only one investigation remains, which is nearing completion. “The Supreme Court in its order of January 3, 2024, noted that Sebi had completed 22 of 24 investigations into the Adani group. Subsequently, one more investigation was completed in March 2024, and one remaining investigation is close to completion,” it said.

Sebi also came to the defence of its chairperson, Madhabi Puri Buch, asserting that the markets watchdog has robust internal controls to manage conflicts of interest. “Sebi has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal. It is noted that relevant disclosures required in terms of holdings of securities and their transfers have been made by the chairperson from time to time. The chairperson has also recused herself in matters involving potential conflicts of interest,” it stated.

Regarding its show-cause notice to Hindenburg Research, Sebi noted that the matter is ongoing and being handled “in accordance with established procedure and in compliance with the principles of natural justice”.

The regulator also dismissed allegations of favouritism towards alternative investment major Blackstone in the regulations concerning real estate investment trusts (REITs) as “inappropriate”. Blackstone is a significant player in India’s REITs sector.

“For the development of the Indian securities market, Sebi has at various times underscored the potential of REITs, SM (small and medium) REITs, InvITs (infrastructure investment trusts), and municipal bonds amongst other asset classes for democratisation of markets, financialisation of household savings, and for capital formation through the capital markets,” the statement noted, adding, “the claim that promoting REITs and SM REITs among various other asset classes by Sebi was only for benefitting one large multinational financial conglomerate, is inappropriate.”

In January this year, the Supreme Court said that there was no ground to transfer Sebi’s investigation into the Adani group-Hindenburg Research matter to a special investigation team (SIT), directing the market regulator to complete its probe within three months. The court had said there were no valid grounds raised to direct Sebi to revoke its amendments on FPI (foreign portfolio investment) and LODR (listing obligations and disclosure requirements) regulations.

A Bench led by Chief Justice of India D Y Chandrachud affirmed that these regulations do not suffer from any infirmities.

In response to concerns about the misuse of FPIs to circumvent minimum public shareholding norms, the markets regulator has enforced a granular disclosure regime for FPIs -- also commonly called its August circular. Under this, funds that exceed certain thresholds, such as over 50 per cent exposure to a single corporate group or an investment exceeding ~25,000 crore in Indian equities, must provide detailed disclosures of economic beneficiaries and beneficial ownership within the funds.