This report is from this week’s CNBC “Inside India” newsletter which brings you the right news, insights and market commentary on emerging powerhouses and the big businesses behind their meteoric rise. As you see? You can subscribe here.
Great story
No one questions India’s sovereignty, as the world’s largest democracy marks 77 years of independence from British colonial rule today.
But – on a topic more relevant to this newsletter – some investors this week questioned whether India’s market watchdog is free as it carries out its regulatory duties.
The Securities and Exchange Board of India (SEBI), the equivalent of the US Securities and Exchange Commission, was the subject of Hindenburg Research’s latest attack this week. A US-based hedge fund that is betting against Adani group companies in early 2023 has now accused SEBI chief Madhabi Puri Buch of having financial interests in one of the parties the agency is investigating.
MUMBAI, INDIA – DECEMBER 20: SEBI chairperson, Madhabi Puri Buch during a press conference at SEBI Head Office, BKC, on December 20, 2022 in Mumbai, India. (Photo by Vijay Bate/Hindustan Times via Getty Images)
Hindustan Times Hindustan Times Getty Images
The short seller said Buch and his wife had stakes in an offshore fund where much of the money was invested by their associate Vinod Adani, brother of Adani group chairman Gautam Adani. Buch dismissed the report’s insinuations as baseless but confirmed that his wife had shares in the fund.
Unusually, in this case, Hindenburg – a short seller who makes money when stocks fall – attacked market regulators, rather than specific stocks.
Except, it’s kind of.
On Monday, the first day of trading after the allegations were made over the weekend, Adani group companies initially lost more than $13 billion in market value. At the end of the day, the group’s market loss was $2.4 billion – or 1.2% – when An index of 50 is good closed flat.
And there are wider potential implications.
together, Adani Port and Adani Company only in 2% of the good 50 benchmarks, which means they can drive the index as a whole – and influence investor sentiment more broadly.
This means that Hindenburg’s allegations pose a problem for India’s wider investor base, as it affects the country’s reputation for fairness and regulatory stability. And all this comes as India tries to differentiate itself from China, whose rule-makers and law enforcers have been criticized for making arbitrary decisions in recent years.
“Such allegations could have a damaging impact if they raise concerns about institutional credibility at a time when foreign inflows are unstable and worries are rising because of the expensive Indian stock market,” Shumita Deveshwar, chief India economist at TS Lombard, told CNBC’s Inside. India.
“The main duty here for the authorities – whether it is the current SEBI chief or the government at the center – is to ensure that the image of the stock market regulator as an independent and trustworthy agency is upheld.”
One way to improve that image is through a “reasonably fair audit,” Deveshwar added. The economist also pointed out that if SEBI, as an institution, continues to protect small investors, as it did recently by warning of a bubble, “the fallout of these charges will be limited.”
Others, too, have suggested that market regulators are more than individuals. Charges against the chief “will not have much impact on valuations as SEBI’s process is institutionalized and not linked to specific people,” said Rajeev Agrawal, a US-based hedge fund manager and managing partner of DoorDarshi India Fund.
However, investors should not forget that India is an emerging market and carries some inherent risks as a result, according to Mohit Kumar, chief financial economist at Jefferies.
Kumar said Jefferies remains “structurally bullish” on India despite allegations against major market regulators, as the country has a “growth story with good demographics”.
“We will get episodes where there are concerns about individual companies, but I don’t think that will damage the medium-term bullish view on India,” he said.
Gotta know
Indian EV startup Ola Electric IPO valued at $4.8 billion. Shares of the SoftBank-backed electric scooter maker have surged 45% above their debut price. The company delivered its first product only about two and a half years ago. By 2030, electric two-wheelers are expected to account for 60% to 70% of all new scooter sales in India. Two-wheelers are the most popular means of transportation in the country.
India launches app to curb wild elephants. India’s northeastern state has launched a mobile app warning people of encroaching herds of wild elephants in an effort to reduce violent encounters between humans and the land giants. Clashes between humans and elephants are not uncommon in India, and have been on the rise in recent years. Elephants are becoming more aggressive as habitats and natural corridors are reduced to make way for urban development.
Prime Minister Narendra Modi outlined India’s aim to host the 2036 Olympics. CNBC-TV18 reported that Modi on Thursday said that the country will not stop in its bid to host the Olympics in 2036. Along with India, several other countries such as Saudi Arabia, Qatar and Turkey consider themselves strong contenders to host the Olympics. home sports spectacle. The International Olympic Committee (IOC) is expected to decide on the host only next year after holding elections.
What is happening in the market?
Indian stocks lost steam this week. At Good 50 The index closed at 24,143.75 points, nearing a loss of 1% for this week. The index has risen 11.10% this year.
Indian government bond yields continue to fall. The benchmark 10-year is trading at 6.86%, two basis points lower than last week.
On CNBC TV this week, Kranthi Bathini, director of equity strategy at WealthMills Securities, said stocks have been in a “liquidity-led rally.” Bathini said the Nifty 50 could reach 30,000 points – about 25% above current levels – “sooner” than 2030.
Meanwhile, HSBC’s Herald van der Linde said India and Indonesia have domestically oriented stock markets and economies, which help them remain “somewhat insulated” from any global volatility.
What happens next week?
August 20: Swedish interest rates
August 22: India PMI, Euro Zone PMI, UK PMI, US PMI