There was a lot of brouhaha earlier this year, both in mainstream and social media, after short-seller #HindenburgResearch stepped up and took aim at Adani Enterprises. The ugly fallout that ensued from thereon between the hunter and the hunted had all the elements of a pulp fiction thriller packed within a lurid cover.
Opinions were polarized: from a large swathe of raucous investors who believed the timing of the report (released on January 24, two days before Adani enterprises FPO raise) made it appear that Hindenburg wanted to torpedo the FPO (which it did!) to another, although a lot quieter, corner of the market which thought this was a classic short-selling move: wrong-footing a company whose stock had made a parabolic 19x move in just under 5 years.
You may be wondering: why am I referencing a controversial event from January this year? Isn’t it too late to take sides anyway? 🙂 Well, I am not really trying to referee this on the lines of who is right and who is wrong (that’s best left to the markets to decide!) but I am revisiting this from the context of the short-sell trade itself.
How has it fared?
Its mixed: while the shares of Adani Enterprises have more than doubled from its Feb 2023 low point of ~INR 1,000 and sit pretty at INR 2,490 today, they are still down 35% on a YTD basis! Is the momentum upward? Yes, the shares have a 3-month return of 30%!
Ah, momentum. That’s as double-edged as it gets.
All traders experience moments of horror during the course of their work, but perhaps, as any short seller would know, nothing can match the terror experienced by a trader during a short squeeze. This opens up a theoretical possibility of an infinite loss!
So, is this the moment where the trade turns against Hindenburg Research? Or will the initial short theses strengthen further? (Hindenburg does not disclose its portfolio positions)
That next act could possibly be decided by more disclosures around two things:
(1) Recall that Hindenburg’s held short positions in the Adani Group Companies through its offshore bonds and ‘non-Indian traded derivative instruments’. The ‘non-Indian traded derivative instruments’ was later identified as Structured Product Derivatives (SPDs) by government agencies from India but was never fully explained by either SEBI or Hindenburg.
(2) That and the recent moves from SEBI to recategorize the risk grades of FPIs; and make the disclosure norms more stringent for high-risk FPIs.
And yes, opinions could well remain polarized. Short selling is like that.
Perhaps best explained by Jim Chanos when he said: I will always understand the schadenfreude aspect to short selling. I get that no one will always like it.
