Indian stock markets started the week on a cautious note, with a mild sell-off observed across various sectors, particularly within the Adani Group. This downturn followed serious allegations made by Hindenburg, a US-based short-seller, against SEBI Chairperson Madhabi Puri Buch and her husband, Dhaval Buch. The allegations have sparked concerns within the financial community, yet the overall market reaction has been subdued.

Market Reaction to Allegations

Unlike the market's reaction to Hindenburg's initial report against the Adani Group in January 2023—which led to a significant loss of USD 150 billion in market value across the conglomerate's 10 listed entities—the current allegations did not trigger a severe market downturn. By mid-morning, Adani Group stocks were trading with cuts of up to 5%, with Adani Total Gas leading the losses with a 4.9% drop. Other group stocks, such as Adani Enterprises, Adani Power, Adani Green Energy, Adani Energy Solutions, Adani Wilmar, Adani Ports & SEZ, ACC, Ambuja Cements, and NDTV, also faced declines ranging from 1% to 3.25%.

Investors have largely digested Hindenburg’s latest report, which was released over the weekend. Industry experts have quickly discredited the allegations, which were seen as an attempt to influence the Indian financial markets. SEBI and the Adani Group were swift to respond, dismissing the claims as baseless and reiterating their commitment to regulatory compliance and corporate governance.

Background of Allegations

Hindenburg's report builds on its previous accusations that the Adani Group is involved in "the largest con in corporate history." The January 2023 report detailed a network of offshore shell entities, primarily based in Mauritius, used for undisclosed related-party transactions and stock manipulation. Despite substantial evidence, SEBI had taken no public action against the Adani Group at that time, which Hindenburg criticizes as a failure of regulatory oversight.

The latest allegations suggest that SEBI's reluctance to act may be due to the involvement of its Chairperson, Madhabi Buch. Hindenburg claims that both Madhabi and Dhaval Buch had invested in the Global Dynamic Opportunities Fund (GDOF) and IPE Plus Fund, offshore entities associated with Vinod Adani. These investments were allegedly made just before Madhabi Buch’s appointment as a whole-time member of SEBI in April 2017. The report suggests that Dhaval Buch moved the assets out of his wife's name before her appointment to avoid regulatory scrutiny.

Offshore Fund Connections

Hindenburg's report delves into the connections between the Buchs and the offshore funds. It highlights that the IPE Plus Fund, in which the Buchs had a stake, was part of a multi-layered offshore fund structure managed by India Infoline (now 360 One), a firm with ties to the Wirecard scandal. The fund had only $38.43 million in assets under management at the end of December 2017, indicating its relatively obscure nature.

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Strong Counter to Allegations

On Sunday, SEBI Chairperson Madhabi Puri Buch and her husband Dhaval Buch issued a detailed response to the allegations, clarifying their investment history. They explained that their investment in the IPE Plus Fund 1, managed by 360 ONE Asset and Wealth Management (formerly IIFL Wealth Management), was made in 2015, well before Madhabi’s appointment to SEBI. They noted that this investment occurred while they were residing in Singapore as private individuals, nearly two years prior to Madhabi's tenure as a Whole Time Member at SEBI.

The statement further explained that their decision to invest was influenced by Anil Ahuja, the Chief Investment Officer, who is a long-time friend of Dhaval from school and IIT Delhi. Ahuja's extensive career, including roles at Citibank, JP Morgan, and 3i Group plc, was a significant factor in their investment decision. The Buchs redeemed their investment in the fund in 2018 following Ahuja's departure from his role as CIO.

Market Sentiment and Industry Response

Despite the serious nature of the allegations, the Indian stock market has not reacted as sharply as it did in January 2023. Analysts and market participants believe that the latest Hindenburg report may not have the same impact, as the market has already priced in the risks associated with the Adani Group. Additionally, the swift response from SEBI and the Adani Group, coupled with the industry’s dismissal of the allegations, has helped stabilize market sentiment.

In summary, while the allegations against SEBI Chairperson Madhabi Puri Buch and her husband Dhaval Buch have sparked discussions, the overall market reaction has been muted. Investors and industry experts remain cautious but are not overly concerned, indicating a more measured approach to the unfolding situation. The Adani Group continues to face scrutiny, but the impact on its stock performance and broader market stability appears to be contained for now.

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