Hindenburg vs SEBI round 3
Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how, too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.
Check out the audio here:
And the video is here.
In today’s episode, we look at 4 big stories:
Hindenburg vs Adani vs SEBI round 3
RBI governor is worried about a lot of things
It’s raining cash for mutual funds
Indian markets can’t stop attracting more money
Hindenburg vs Adani vs SEBI round 3
Short-sellers are like the janitors of the stock market—they sweep up the messes by identifying fraud and bringing some order to the chaos. If you're new to the markets, here's the deal: short sellers are investors who make money by betting on a company's stock price going down. They sell high first and then buy back low.
Now, while short sellers play a critical role, not all of them are heroes. Just a few weeks ago, the Securities Exchange Commission (which is like the U.S. version of SEBI) slapped a $20 million fine on a well-known short seller for trying to scam investors with misleading statements.
This weekend, Hindenburg Research, a famous short-selling firm, made headlines again, this time by making some wild allegations against the SEBI chairperson. I want to be clear upfront—these claims are blown way out of proportion, and there's no solid evidence to back them up. The SEBI chairperson has already issued a detailed response, debunking the claims point by point. But before we dive into that, let's walk through this very entertaining saga:
Hindenburg first hit the spotlight in January 2023 when they dropped a bombshell report accusing the Adani Group of stock manipulation and accounting fraud. The fallout was immediate—Adani's stock prices plummeted between 20% and 80%. But by June 2024, those stocks had bounced back, recovering all their losses.
In March 2023, the Supreme Court ordered SEBI to investigate the claims in Hindenburg's report and see if there was any manipulation of share prices. By 2024, SEBI had wrapped up 22 out of 24 investigations and submitted the findings to the Supreme Court, though these reports haven't been made public yet.
People had mostly moved on from this drama until early July this year. That’s when Hindenburg revealed that SEBI had sent them a show-cause notice for failing to disclose certain information and possibly profiting unfairly from short positions by spreading misleading statements. Things stayed quiet after that—until last Saturday.
On August 10th, Hindenburg fired off a new set of allegations, this time targeting SEBI Chairperson Madhabi Puri-Buch. They claimed she and her husband had stakes in offshore funds linked to the Adani Group and hinted at conflicts of interest, pointing to her involvement with these funds and her husband's advisory role at Blackstone, a big REIT investor in India. They also questioned some regulatory changes around REITs. Oh, and by the way, all these funds were supposedly funneled through IIFL.
Both SEBI and the Chairperson quickly responded. SEBI urged investors to stay calm and think critically before reacting to Hindenburg’s report. On the REIT issue, SEBI explained that any rule changes come only after thorough discussions with experts, industry leaders, and the public.
As for the conflict of interest accusations, SEBI made it clear that the Chairperson has always been upfront about her financial interests and has stepped away from decisions where a conflict might arise. The Chairperson herself said that her financial investments were made long before she took on her role at SEBI and that she’s been fully transparent, disclosing everything to SEBI and tax authorities. She dismissed the allegations as baseless and an attempt to tarnish both her reputation and SEBI's credibility.
Meanwhile, IIFL chimed in, stating that the fund in question had no stake in any Adani companies.
As I said earlier, short sellers aren’t always the knights in shining armor they might seem to be. Sometimes, they engage in pretty shady tactics to turn a profit. This latest episode with Hindenburg is a perfect example of how things can get murky.
RBI governor is worried about a lot of things
Last week, the RBI had its policy meeting, and as expected, they decided to keep the repo rate unchanged at 6.5% for the 9th consecutive meeting.
So, no surprises here—borrowing costs stay the same for now. Why did they make this call? The RBI is playing it safe, keeping a close eye on inflation, especially food inflation.
Since November 2023, food inflation has consistently stayed above 8%. This is a big deal because food and beverages make up about 45% of the overall CPI inflation basket. So, when food prices go up, it pushes headline inflation up too. That’s why CPI inflation has been above the RBI’s target of 4% for most of the year, except for this month when it dropped slightly. But that drop is mainly due to the base effect since inflation in June 2023 was at a high of 7.4%.
The RBI is concerned because rising food prices affect everyone. Imagine going to buy your favorite snack and finding out it costs more than it did last month—not great, right? The RBI knows that high food prices can really pinch people’s wallets, so they’re keeping a close watch to make sure things don’t spiral out of control. Until they’re confident that inflation will stay under 4%, interest rates aren’t likely to budge.
In his recent speech, RBI Governor Shaktikanta Das highlighted this concern. He mentioned that high food inflation impacts household inflation expectations. Basically, if inflation stays high, people start to believe it’ll stay that way, which can lead to higher wages and living costs. This, in turn, can cause companies to raise prices, making inflation even stickier.
But that’s not all the governor talked about. He made some important observations and announcements that I’ll break down:
On Credit Growth and Deposit Growth:
Last month, the RBI governor pointed out a growing gap between credit growth and deposit growth and called for a better balance. He reiterated this concern in the policy meeting. He said that alternative investment avenues, like mutual funds and debt funds, are becoming more popular, leading to slower deposit growth compared to the rate at which banks are lending. If this gap continues, it could expose the banking system to structural liquidity issues.
The governor is worried that these alternatives are drawing money away from traditional bank deposits, which are critical for banks to fund loans. He’s urging banks to get creative and find ways to attract more deposits.
On Unsecured Loans:
The RBI has been keeping a close watch on the rapid growth of unsecured loans since the pandemic. At one point, these loans were growing at a staggering 32% year on year, though it’s now moderated to 28%. The governor noted that measures taken in November 2023 to make personal loans more costly for banks are having an impact.
However, some segments of personal loans are still growing at a fast pace. The governor raised concerns about people taking out personal loans for consumption purposes, which could become a macroeconomic problem.
It’s not just personal loans that are on the RBI’s radar. The governor also mentioned home equity loans, or top-up loans, where people borrow extra money on top of an existing loan, like a home loan, as well as other collateralized loans like gold loans. The RBI has noticed that some banks aren’t following the rules when issuing these top-up loans.
Given the RBI’s recent crackdown on various issues, from KYC to underwriting—as seen with Paytm, Bajaj Finance, Kotak Bank, and HDFC Bank—it looks like some regulatory action might be coming for lenders that aren’t playing by the rules with top-up loans on houses and gold.
On UPI Changes:
Now, onto some good news! The RBI announced some exciting changes for UPI. First, they’re raising the limit for UPI transactions when it comes to paying taxes. Right now, the limit is ₹1 lakh per transaction, but they’re bumping it up to ₹5 lakh. So, if you’ve got a big tax bill to pay, UPI’s got your back.
But there’s more! The RBI is also introducing something called Delegated Payments through UPI. This is a pretty cool feature—it means you can allow someone else, like a family member, to make UPI payments from your account up to a certain limit, even if they don’t have their own bank account linked to UPI. So, if you’re tied up and need someone to pay a bill for you, they can do it directly from your account. This is going to make digital payments even more flexible and convenient.
So, while the RBI is keeping a tight grip on inflation and credit growth, they’re also making sure digital payments continue to evolve and become even more user-friendly.
It’s raining cash for mutual funds
The mutual fund flows data for July just came in last week, and it's clear that domestic investors are still incredibly bullish on the markets. In July alone, investors poured in ₹43,000 crores into mutual funds. While that’s a slight dip from the ₹45,000 crores in June, it’s still a massive figure. Just to put it in perspective, mutual fund flows during the same time last year were only around ₹9,400 crores.
The pace of inflows into mutual funds this year has been nothing short of remarkable. So far this calendar year, net equity inflows have totaled about ₹2.4 lakh crores. Compare that to the first seven months of last year, when it was just ₹80,000 crores, and you can see how stunning this year’s numbers are.
A big part of this surge in inflows is thanks to strong SIP (Systematic Investment Plan) flows and the money going into new mutual fund schemes, also known as NFOs (New Fund Offers).
Let’s start with SIP flows. On average, gross SIP inflows have been around ₹20,000 crores each month, but the net SIP flows—after accounting for redemptions—are about ₹8,500 to ₹9,000 crores. The popularity of SIPs has skyrocketed over the last four years, becoming a go-to investment option for many.
Now, talking about NFOs—the inflows here have been nothing short of impressive. This year, new mutual fund schemes have raised a whopping ₹51,700 crores. Last year, this number was just ₹17,800 crores. People are really going all in on new thematic schemes targeting sectors like defense, manufacturing, energy, and tourism. It’s a clear sign of a bull market when everyone’s going crazy over the latest investment themes.
Mutual fund flows are a key reason why the Indian markets have been so resilient this year. But it’s not just mutual funds driving this strength—you’ve also got equity flows coming in from the provident fund, the national pension scheme, and insurance companies. All these automatic flows have been steadily growing, showing how the investor base in Indian markets is deepening. It’s a great sign of confidence and interest in India’s growth story.
Indian markets can’t stop attracting more money
India might be on the verge of attracting a significant amount of money from foreign investors. You might wonder why. Well, foreign investors often rely on broad indices to decide how much to invest in different countries. One of these key indices is the MSCI Emerging Markets Index, which includes 24 emerging market countries like India, China, Brazil, and Taiwan.
Source: MSCI
The larger a country's weight in this index, the more money flows into that country from foreign investors. India’s weight in the index has been climbing steadily, from less than 10% in 2020 to almost 20% now, thanks to the impressive bull market we’ve experienced.
Analysts are now predicting that India’s weight in the index could increase by at least one percentage point following MSCI’s review this week. This would bring India almost on par with China, which currently holds a 22.33% weight in the benchmark, while India is just behind at 19.99%. According to one estimate, this increase in weight could lead to an inflow of more than ₹9,500 crores into the Indian markets.
Sad that you had to tow the line, but you have business to run....one can understand.