A fraud that is not…and yet, it may well be…the Gautam Adani stock market issue as I understand it
February 2, 2023 12:58am CST
I have long batted for uniform laws across the world in Global economy, because what may seem to be right to me in my country may not be right in your country based on laws and provisions in your world. Moreover, new provisions and safeguarding measures are put in place across a period based on experiences… and they can differ from one country to another, keeping the loopholes alive for somebody to exploit. That being the preface…who is Guatam Adani ..a rich Indian industrialist, whose assets have increased several fold in the last few years… Big deal. That happened to many…. You’d say. But not in COVID times…and we are talking about increase in asset valuations to the tune of 2000 plus percentage…right…you read it correctly two thousand plus percent. Did I touch his stocks? No. Why? I am a realist…Pony called me pragmatic. Whatever! In our stock markets, if you get average return of over 15 percent per annum compounded, you are either a genius, or a fool waiting for the doom’s day. So the rapid increase in Adani’s stocks made me stop playing in stock markets. I knew the doom’s day was somewhere around the corner, and my poor humble realistic stocks too would bear the brunt. But hey, did he contravene any provisions…NOT THAT I KNOW OF. To be a fraud, it must be against the laws. But it does not seem to be! You see, he had a couple of companies to begin with. Good companies. What did he do? He went on buying stocks of those companies till he and his family and friends became majority shareholders…actually almost 75 percent. Then they stopped selling shares. Held on to their purchases tightly! The demand supply of the stocks resulted in more demand, and less supply. It was inevitable that price of the stock went up even though there was no backing of results and profitability to support this high price of Adani Group stocks. Now having managed to push up the prices with artificial manipulations, this gentleman goes to the bank with his portfolio of investment seeking loan. The Branch manager has no reasons to doubt Adani and much lesser reason to refuse. After all, basically, his companies are good, and so are his plans. There are norms for granting loans….60 percent of the prevailing market price of the share. So the promoters pledge their shares, take loans to buy another debt free company… repeat the procedure. All this became possible partly because COVID created panic at a time when these people had large sums on their hands. Now, it is the banker who is left high and dry because the actual value has fallen below the 60 percent of the peak value. Technically, no fraud committed. But in reality, he has hurt some shareholders. Interesting person.
10 people like this
• Raurkela, India
What can his irregularities be called is yet to be confirmed. We have to wait and watch.
Funny part is...he did not contravene any of the provisions of Companies act, or even the SEBI regulations...so it was quite tongue in cheek stuff...made me laugh actually. At least, it has highlighted to us that this can happen. SEBI and RBI will work overnight to plug the loophole. I think Adani Ports has reached a level when I can buy it...
@aninditasen Banks are claiming that they are not at loss. SEBI and the Companies act allow the promoters to hold substantial shares, and it is also needed in case of delisting the stocks, or requirement at the time of Initial Public Offer or Further Public Offer. But institutions like LIC invest in equities. 8 percent is huge exposure.
• Raurkela, India
@vandana7 The bank and the SEBI have purposefully overlooked the flaws. Now they have to bang their heads.
• Rockingham, Australia
There are many ways it seems to manipulate the stock market. Meanwhile, the rich get richer and the poor get poorer.
I have used the method to raise funds for buying a home. Down payment actually. But if COVID and consequent sharp dip in stocks had not come about ...this scenario would not have materialized. As things stand, the promoters had raised the monies, just a few months before COVID raised its ugly head...so they had way too much money on their hands, while stocks were falling sharply because of COVID. Anybody would have taken the opportunity to buy stocks...recovery in stock market was V shaped...following that drop, making them decent sum.
• Mombasa, Kenya
Yes I agree with you. It's really complicated