Sunday Snippets: Adani and the fate of share markets
By Venkatesh Raghavan
It was early morning and the discussion was about the fate of the share markets in wake of a steep crash in Adani stock prices. My friend Amir and I were seated at the corner table munching chicken patties. Our conversation went somewhat along these lines.
Amir: Why does our government not take cognizance of the reported scam? It looks as if our share markets are in serious trouble.
Me: Amir, if you study properly, the Hindenburg reports have merely provided a summary of all the allegations that have been heaped on the Adani group over the previous so many years. People in our country were already well aware of this.
Amir: You are sounding very mysterious. When sufficient evidence has been put in the public domain, how do you expect the markets to escape the consequences of such high-scale manipulations?
Me: You fail to understand Amir. Wherever there is a sink, there will also be a source available. Without an effective sink, providing a source will not help.
Amir: Your logic beats me. How on earth is anyone going to source money so that it can go down the drain to some individual promoter’s kitty?
Me: It’s simple to understand if you look around and see how much foreign investments flow into the country. Let’s take the example of an airbag. If the airbag is full, you won’t be able to blow any air into it. Only after the airbag gets emptied will you be able to pump or blow in the fresh air. Similarly, when Adani share prices crumble and a vacuum is created in the share markets, a group of shell companies from tax havens like Mauritius will pump in money in order to bloat the deflated stock index. That’s the only way the humongous amount of black money can get pumped into the system and made to look legal and white.
Amir: What good is it to our country? Who are the people who stand to benefit from such laundering elements?
Me: When you ask me about what is good and who stands to benefit, I am reminded of a quote from a former senior civil servant. “In India, courts are meant for lawyers and judges, Police stations are meant for policemen and hospitals are meant for nurses and doctors.” I will just expand it a bit and say, “Our stock exchanges are meant for brokers and corporate houses. Nothing is ever meant for investors or any member of the public.”
Amir: You seem to be very nonchalant about the scores of investors who have lost their money following this crash. In fact, I learnt a huge amount of retail investors have already started feeling the cramps of the financial crunch.
Me: You fail to understand the principle on which these types of manipulations operate. You might have heard about a popular management strategy of “Create a problem and solve it.” Similarly, Hindenburg with help of Adani has created a problem and the investors are all at sea. When and how will the problem get solved?
Amir: I fail to get the complete picture. You will have to elaborate.
Me: Amir, another group of front companies will step in to create what looks like an attractive foreign investor and pump money into the stocks. The gullible investors looking for relief will eagerly bite the bait and purchase stocks that promise to appreciate in value with time. Our markets are truly digital Amir, meaning two-state operations like zero and one. We have a bull market followed by a bear market and it goes on.
Amir: Oh. Let’s stop here.
