• Imperative for Adani Group, India to shore up investor trust

The turmoil in the stock markets, largely caused by the sell-off of the Adani Group shares since late last week, has brought into sharp focus India’s regulatory framework, apart from the necessity of robust accounting practices. Investor sentiment suffered following the release of a report by New York-based Hindenburg Research — an investor research firm that positions itself as an investigator-activist — which alleged that the Adani Group had engaged in ‘a brazen stock manipulation and accounting fraud scheme over the course of decades.’ Even as it lost tens of billions of dollars in valuation, the Adani Group denied the accusations, calling them ‘selective misinformation and stale, baseless and discredited allegations’, and ‘a calculated attack on India.’ The report also raised questions over the group’s high debt levels and accused it of using shell companies based in tax havens. In the past, analysts have pointed at large investments in the Adani Group by entities such as the LIC and several public sector banks.

The allegations made by Hindenburg may be insufficient to prosecute Adani, but it’s imperative that regulators such as SEBI and the Reserve Bank of India address the issue swiftly and decisively. This is important because at stake is India’s reputation as an investment destination — India’s is the fifth-largest economy in the world and many investors now look at the country as a more attractive option than China and other emerging economies. The episode also focuses the spotlight on audit firms — across the world, the unscrupulous among these have been known to help big companies mislead investors by manipulating accounts. Just in the current century, many observers blamed audit firms for the collapse of Enron in 2002 and Lehman Brothers in 2008.

To shore up investor trust, the Adani Group and regulatory institutions must dispel fears of auditing fraud or any other malpractice. Probity in accounting safeguards institutional and individual investments, helping investors make informed decisions. The regulatory authorities and the government must ensure that the interests of the average investor are protected, and the country’s reputation as an investment destination is not sullied.
(Tribune, India)