The dramatic turn of events after US-based Hindenburg Research published its report levelling a series of allegations against the Adani group have tested the markets, institutions and regulators like never before. The good news is that they have all fared reasonably well.

The broad market, after the initial panic, settled down even as the Adani group stocks continue to be pummelled; market institutions stepped up surveillance while regulators actively sought to calm and reassure investors. But there’s more to be done. .

Activist short-sellers building large positions in over-valued securities and looking to profit from narratives that target their governance, is common in developed markets. Such attempts fail as often as they succeed. But the unconvincing and vague responses from the Adani group to Hindenburg’s allegations have dented investor confidence. .

In its report, Hindenburg has relied on a mish-mash of public data (high leverage, complex holding structure, promoter pledges), past regulatory investigations (some of which have been closed) and its own forensic research to propagate the thesis that Adani stocks carry a downside of 20 to 90 per cent.

It has also levelled serious allegations of the Adanis using overseas shell entities to prop up valuations and create an illusion of public float.

It is a fact that the Adani group has a complex holding structure and that its shares were traded at astronomical valuations. But to push back convincingly on mis-governance allegations, the group should have issued a factual rebuttal of Hindenburg’s findings on related-party dealings and shell entities, instead of a statement high on nationalistic rhetoric.

If conglomerates such as the Adanis want to establish themselves as multinational giants with ambitions of making cross-border acquisitions relying on foreign capital, they need to be open to deep scrutiny from global investors and regulators.  

Allegations of fraud, money laundering or accounting irregularities against any listed firm can only be addressed through independent investigations by regulators and investigative agencies. The attempt in the last one week by different regulators, and indeed the government, has been to calm markets and reassure investors that there is no systemic issue affecting overall financial stability.

While this is welcome, all eyes are now on the Securities and Exchange Board of India, especially after statements from top government officials lobbing the ball into the regulator’s court. The market regulator put out a vague statement on Saturday about how it takes “appropriate action” on specific “entity-related matters” after examination. It needs to now take that forward and closely examine the charges levelled by Hindenburg against the Adani group.

Alongside, the regulator should also analyse the quality of disclosures by Hindenburg of its short positions. The short-seller’s strike on Adani may be the first such instance in Indian markets but it will surely not be the last. It is therefore important that proper regulatory precedents are set.