Was it a tsunami of short betting “outside India” that triggered the Adani Group’s $100 billion stock price plunge? ) was used to target tick companies. SPD is a powerful stock market product tailored by foreign brokers for large clients in offshore jurisdictions. These SPDs are similar in many ways to the controversial Certificate of Participation in that the identity of the actual customer remains hidden until the regulator removes the veil.
Under Indian tax law and SEBI law, it is illegal to short domestic shares outside the jurisdiction of the country unless they are listed on an exchange. However, an investigation revealed that billions of dollars worth of stock in the Adani Group had been traded abroad. This has had ripple effects on India-listed stocks as volatility has increased.
The biggest clue of the overseas short selling in Adani stocks came from Hindenburg, which claimed to have targeted the group citing fraud and sky high valuations. On January 24, Hindenburg revealed: “held short positions in Adani companies through bonds and non-Indian-traded derivative instruments.” While Adani bonds are listed on the US exchange, Hindenburg`s reference to the `non-Indian-traded derivatives` raised the alarm for Indian regulators. Sources told businessline that these non-Indian-traded derivatives are nothing but SPDs. If not for these derivative instruments, which triggered the rout, there was no chance of heavy selling in Adani shares in India that could have wiped out $100 billion in less than a week, since more than 90 per cent of the float was held by promoters, entities close to them and domestic institutions.
It is an open secret that the dream run in Adani stocks was fuelled by this demand-supply mismatch. Short selling begun ahead The probe also shows that the operation to short sell Adani shares and Indian markets may have begun several weeks ahead of the Hindenburg report, which was published on January 24, just a day ahead of the monthly derivative market expiry in India and a few sessions ahead of the Union Budget, when volatility is usually high.
The report may spoil sentiment, but the drop in size seen at the Adani company required a large position. If a foreign broker sells Indian underlying SPDs to sensitive clients in tax havens or offshore jurisdictions, they may seek to partially hedge their positions on the Indian stock exchanges, or they may seek to sell to Foreign Portfolio Investors (FPIs). through a partner registered in India as The hedge by FPI, which has been shorting Adani shares abroad, has fueled bearish bets in the Indian market.