In the Adani-Hindenburg case, the Supreme Court’s terms of reference to the expert committee constituted by it is four-fold. First, provide an overall assessment including the factors that led to the volatility in the securities market; second, suggest measures to strengthen investor awareness; third, investigate if there has been a regulatory failure in dealing with the alleged contravention of laws by the Adani group; and finally, suggest measures to strengthen the investor protection framework.

It would be a tall order for experts to come up with measures that can rein in stock market volatility, as volatility is a basic feature of the market and not an abnormality. It is in the very nature of the market to over-react to both positive and negative news in the short run. But it is due to its ability to eventually align stock prices with fundamentals that retail investors are urged to invest in equities with a long-term perspective. The Hindenburg allegations, for instance, helped blow off froth in the overvalued Adani stocks, but these stocks also managed significant pullbacks after news of a successful fund-raise by the Adanis. While SEBI must certainly protect investors from fraud or manipulation, it is not for the regulator to protect short-term punters from the consequences of their own actions.

On whether Indian markets have sufficient regulatory guardrails, the answer is a firm ‘yes’. SEBI has multiple statutes in place — from its Listing Obligations and Disclosure Requirement to Prevention of Fraud and Unfair Trade Practices rules — to level the playing field for retail investors and shield them from fraud. Exchanges also impose many corrective mechanisms — from active derivatives contracts in index stocks that allow investors to hedge cash positions, to circuit filters, to Advanced and Graded Surveillance Mechanisms with stiff margining that seek to rein in excessive single day moves.. While there is always room for improvement in SEBI’s investigative processes and the promptness of its enforcement actions, India has earned high global ranks from independent institutions for minority investor protection. As for investor awareness, this is one of the most well-funded causes in India with dedicated vehicles from Investor Education and Protection Fund (run by the Corporate Affairs Ministry), similar schemes run by SEBI and exchanges, and investor education initiatives.    

A couple of aspects that do call for an enquiry in the Adani case are alleged violations of minimum public holding norms, and accusations of price manipulation by the group. This is apart from whether Hindenburg itself was treading a thin line on India’s short-selling rules. But to draw any conclusions on these issues, the committee will again have to rely on SEBI’s investigative capabilities and resources. Finally, given the Court’s justified concern with transparency — it discarded the Centre’s suggestions for the Committee members in a sealed envelope — it is strange indeed that it has asked for the report in a sealed cover in two months.