The Hindenburg report, which has wiped out nearly USD 110 billion Adani listed stocks is in the centre of news for the last two weeks. US based-short seller Hindenburg has revealed a short position in the Adani group alleging artificial increase in stock value by stock manipulation and other taxation frauds. While these allegations have been denied by the Adani group, it has severely impacted investor sentiment.
Hindenburg, which has carried out similar exposes in the past and benefitted with short selling is being referred to as an activist short seller. So, who is an activist short seller ?
Who is an activist short seller?
An activist short seller is a type of short seller who takes a short position in a company and publicly highlights perceived flaws or issues with the company’s business practices, operations, financials, or management in an effort to drive down the stock price. The goal of activist short selling is to generate profits from the decline in the stock price while also drawing attention to issues that may negatively impact the company’s value.
Activist short sellers often produce research reports, give presentations, and use other forms of communication to share their findings and opinions on a particular company. They may also engage with the company’s management and board of directors, and sometimes work with other investors or shareholder groups to push for changes.
While activist short selling can bring attention to important issues, it can also be a controversial practice. Some view it as a valuable form of corporate activism that helps to promote transparency and accountability, while others see it as a form of manipulation that can harm companies and their shareholders.
Regardless of one’s perspective on activist short selling, it is important for investors to critically evaluate all information, including that provided by activist short sellers, before making investment decisions.
Is short selling illegal in India ?
No, short selling is not illegal in India. It is a widely used trading strategy in the Indian stock market and is regulated by the Securities and Exchange Board of India (SEBI). However, there are certain rules and regulations that govern short selling in India, including margin requirements, reporting requirements, and restrictions on short selling during marketwide circuit breaker events.
SEBI has also introduced various measures to monitor and regulate short selling, such as the use of a Short Sale Order Book for intra-day short selling, which allows for better tracking and monitoring of short selling activities.
In conclusion, while short selling is not illegal in India, it is a regulated activity and investors must be aware of and comply with the rules and regulations set by SEBI.