On Friday, S&P Dow Jones Indices announced the removal of Adani Enterprises, the flagship company of the Adani Group, from its well-recognised sustainability indices. This change will be in effect from February 7, 2023. Since the announcement, the value of Adani stock has plunged to its 15% lower circuit.

“Adani Enterprises (XBOM : 512599) will be removed from the Dow Jones Sustainability Indices following a Media & Stakeholder Analysis triggered by allegations of stock manipulation and accounting fraud,” the announcement claimed.

A Reuters report outlined that the removal from the index will have a significant effect on sustainability-focused investors, who are likely to detach themselves from the company. Adani's market capitalisation had already gone down from $217 billion before the Hindenburg Research report was published, to $102 billion post the report's release, and this latest blow from Dow Jones may drive it down still further. 

The Dow Jones announcement came a day after Adani Enterprises, alongside Adani Ports & SEZ and Ambuja Cements, was placed under additional surveillance measures (ASM) framework by the National Stock Exchange of India. The ASM framework entails that to deter short-selling and speculation, a 100% margin is a requisite to trade in the group’s shares - making it much harder to trade and thereby reducing volatility of the share price.

Even though the group tried to calm investors by releasing a statement that the conglomerate had laid aside Rs. 20,000 crore share sale to stabilise share price in the midst of rising market volatility, the shares continued to decline.

Worse and worse: even the banks are distancing themselves

Big banks like Citigroup and Credit Suisse have ceased to accept the bonds of the Adani firms as collateral for margin loans. In an internal memo noted by Bloomberg, Citigroup said, “In recent days, we have seen a dramatic price drop of Adani issued securities. Stock and bond prices have plummeted following the negative news around the group’s financial health.”

Gautam Adani has also lost his title of India’s richest man to Mukesh Ambani, Chairman and Managing Director of Reliance Industries Ltd. Worse, he's completely exited from the Forbes top 10 list of richest people, his personal wealth having plunged by over $50 billion.

All of these blows originate from the Hindenburg research report that accused Adani of “brazen stock manipulation and accounting fraud scheme.” The report, pulling no punches, also called him “the largest con in corporate history.” 

Adani has called the report a “malicious combination of selective misinformation and stale, baseless and discredited allegations.” A 413-page statement was issued by the company on Saturday which, according to Hindenburg, did not cater to most of the issues highlighted in the report.

This spiralling down of India's richest man is reminiscent of a similar incident driven by short-sellers over a decade ago. In November 2012, Singapore-listed Olam International, a multinational commodities firm, lost about 10% of its value when US-based short seller Muddy Waters issued a 133-page report alleging that the value of some of its assets were overstated and disclosures about the assets were fallacious. At the time, Olam similarly refuted the claims as “false and misleading”, but unlike Adani, it was not abandoned by investors and stakeholders. Olam later recovered with Singapore's sovereign wealth fund even investing in it a few years later, showing that the furore over the short seller's accusations was no more than a short term market gimmick for the accuser's profit.

The chaos now surrounding Adani shows how influential the short-sellers can be in reversing a company's fortunes within a span of a mere week - but the old example of Olam's recovery also shows that things may yet change in the long term.