In one week, shares of Gautam Adani’s group lost around $100 billion in value, or a third of the group’s total value. Gautam Adani was the richest person in India and the third richest in the world until a few days ago, when his businesses were the subject of a major survey published on January 24 by a small research and of investment, which denounced illegal practices and scams put in place. thanks to a dense network of companies off the coasti.e. registered in tax havens.
Since then, investors who held Adani shares began to sell them massively, no longer trusting the solidity of the group and causing a collapse in the market value of the shares, which gradually deteriorated.
Given the huge loss, the group called off a $2.5 billion share offering that began last Friday, saying it ‘wouldn’t be morally correct’ to proceed given the stock’s performance in the financial markets. Investors would have already incurred a loss at the time of purchase.
In a video posted Thursday just before markets open, founder Gautam Adani denied concerns over his group’s financial health, saying the cancellation of the stock sale “will have no impact on our existing operations. and our future projects”. , we will review our capital markets strategy.
The research and investment firm that published the survey, Hindenburg Research, meanwhile draws a lot from this story. Hindenburg’s reports are very successful and have often succeeded in exposing malpractice, but at the same time, founder Nathan Anderson and company sometimes profit from the financial collapse of the individuals or companies they target. For this, Anderson has often been called an “activist investor”, precisely because he takes positions of short sale on titles.
THE short sale this is a widespread financial practice for essentially speculative purposes: it is the so-called short sale, whereby an operator sells a security without holding it, with the promise of delivering it to the buyer shortly afterwards . Traders do this because they are betting that the price of the stock will fall between sale and delivery, in order to make a profit. For example, Trader A decides to short sell Company X’s stock for €100 to Trader B. He cashes in €100 and in the time between sale and delivery of the stock – usually short, it can be a few hours or a few days – indeed the market price drops to 80 euros. When he has to deliver it, he buys it at a reduced price and in the end he ends up with a net profit of 20 euros.
Obviously this is a bet on the performance of the action: the price could on the contrary rise and in this case the seller would lose. Precisely because it is not considered an investment instrument but only a speculative instrument, short selling is strictly regulated and, in times of particular financial stress, the authorities have even gone so far as to ban (as happened in many countries, including Italy, at the start of the pandemic when panic broke out in financial markets).
In this case, Hindenburg Research and Anderson’s bet paid off: by causing the stock to crash, they managed to make money by selling at a higher price and buying at a lower price. .