Modi-linked Adani family secretly invested in own shares, documents suggest

 Hannah Ellis-Petersen in Delhi and Simon Goodley in London in The Guardian

A billionaire Indian family with close ties to the country’s prime minister, Narendra Modi, secretly invested hundreds of millions of dollars into the Indian stock market, buying its own shares, newly disclosed documents suggest.

According to offshore financial records seen by the Guardian, associates of the Adani family may have spent years discreetly acquiring stock in the Adani Group’s own companies during its meteoric rise to become one of India’s largest and most powerful businesses.

By 2022, its founder, Gautam Adani, had become India’s richest person and the world’s third richest person, worth more than $120bn (£94bn).

In January, a report published by the New York financial research firm Hindenburg accused the Adani Group of pulling off the “largest con in corporate history”.

It alleged there had been “brazen stock manipulation and accounting fraud”, and the use of opaque offshore companies to buy its own shares, contributing to the “sky high” market valuation of the conglomerate, which hit a peak of $288bn in 2022.

The Adani Group denied the Hindenburg claims, which initially wiped $100bn off the conglomerate’s market value and cost Gautam Adani his prime spot on the world rich list.

At the time, the group called the research a “calculated attack on India” and on “the independence, integrity and quality of Indian institutions”.

Yet new documents obtained by the Organised Crime and Corruption Reporting Project (OCCRP), and shared with the Guardian and the Financial Times, reveal for the first time the details of an undisclosed and complex offshore operation in Mauritius – seemingly controlled by Adani associates – that was allegedly used to support the share prices of its group of companies from 2013 to 2018.

Up until now, this offshore network had remained impenetrable.

The records also appear to provide compelling evidence of the influential role allegedly played by Adani’s older brother, Vinod, in the secretive offshore operations. The Adani Group says Vinod Adani has “no role in the day to day affairs” of the company.

In the documents, two of Vinod Adani’s close associates are named as sole beneficiaries of offshore companies through which the money appeared to flow. In addition, financial records and interviews suggest investments into Adani stock from two Mauritius-based funds were overseen by a Dubai-based company, run by a known employee of Vinod Adani.

The disclosure could have significant political implications for Modi, whose relationship with Gautam Adani goes back 20 years.

Gautam Adani (L) shakes hands with Narendra Modi, then the chief minister of Gujarat, at a summit in 2011. Photograph: Mint/Hindustan Times/Getty Images

Since the Hindenburg report was published, Modi has faced difficult questions about the nature of his partnership with Gautam Adani and allegations of preferential treatment of the Adani Group by his government.

According to a letter uncovered by the OCCRP and seen by the Guardian, the Securities and Exchange Board of India (SEBI) had been handed evidence in early 2014 of alleged suspicious stock market activity by the Adani Group – but after Modi was elected months later, the government regulator’s interest seemed to lapse.

In response to fresh questions relating to the new documents, the Adani Group said: “Contrary to your claim of new evidence/proofs, these are nothing, but a rehash of unsubstantiated allegations levelled in the Hindenburg report. Our response to the Hindenburg report is available on our website. Suffice it to state that there is neither any truth to nor any basis for making any of the said allegations against the Adani Group and its promoters and we expressly reject all of them.”

The offshore money trail

The trove of documents lays out a complex web of companies that date back to 2010, when two Adani family associates, Chang Chung-Ling and Nasser Ali Shaban Ahli, began setting up offshore shell companies in Mauritius, the British Virgin Islands and the United Arab Emirates.

These financial records appear to show that four of the offshore companies established by Chang and Ahli – who have both been directors of Adani-linked companies – sent hundreds of millions of dollars into a large investment fund in Bermuda called Global Opportunities Fund (GOF), with those monies invested in the Indian stock market from 2013 onwards.

This investment was made by introducing yet another layer of opacity. Financial records paint a picture of money from the pair’s offshore companies flowing from GOF into two funds to which GOF subscribed: Emerging India Focus Funds (EIFF) and EM Resurgent Fund (EMRF).

These funds then appear to have spent years acquiring shares in four Adani-listed companies: Adani Enterprises, Adani Ports and Special Economic Zone, Adani Power and, later, Adani Transmission. The records shine a light on how money in opaque offshore structures can flow secretly into the shares of publicly listed companies in India.

Gautam Adani’s older brother, Vinod. Photograph: Youtube

The investment decisions of these two funds appeared to be made under the guidance of an investment advisory company controlled by a known employee and associate of Vinod Adani, based in Dubai.

In May 2014, EIFF appears to have held more than $190m of shares in three Adani entities, while EMRF looks to have invested around two-thirds of its portfolio in about $70m of Adani stock. Both funds appear to have used money that came solely from the companies controlled by Chang and Ahli.

In September 2014, a separate set of financial records set out how the four Chang and Ahli offshore companies had invested about $260m in Adani shares via this structure.

Documents show that this investment appeared to grow over the next three years: by March 2017, the Chang and Ahli offshore companies had invested $430m – 100% of their total portfolio – into Adani company stock.

When contacted by the Guardian by phone, Chang declined to discuss the documents setting out his company’s investments in Adani shares. Nor would he answer questions about his links to Vinod Adani, who along with Ahli did not respond to efforts to contact them.

Indian stock market rules

The alleged offshore enterprise of the Adani associates raises questions about the possible breaching of Indian market rules that prevent stock manipulation and regulate public shareholdings of companies.

The rules state that 25% of a company’s shares must be kept “free float” – meaning they are available for public trade on the stock exchange – while 75% can be held by promoters, who have declared their direct involvement or connection with the company. Vinod Adani has recently been acknowledged by the conglomerate as a promoter.

However, records show that at the peak of their investment, Ahli and Chang held between 8% and 13.5% of the free floating shares of four Adani companies through EIFF and EMRF. If their holdings were classified as being controlled by Vinod Adani proxies, the Adani Group’s promoter holdings would have seemingly breached the 75% limit.

Political ties

Gautam Adani has long been accused of benefiting from his powerful political connections. His relationship with Modi dates back to 2002, when he was a businessman in Gujarat and Modi was chief minister of the state, and their rise has appeared to happen in tandem since. After Modi won the general election in May 2014, he flew to Delhi on Gautam Adani’s plane, a scene captured in a now well-known photo of him in front of the Adani corporate logo.

During Modi’s time as leader, the power and influence of the Adani Group has soared, with the conglomerate acquiring lucrative state contracts for ports, power plants, electricity, coalmines, highways, energy parks, slum redevelopment and airports. In some cases, laws were amended that allowed Adani Group companies to expand in sectors such as airports and coal. In turn, the stock value of the Adani Group rose from about $8bn in 2013 to $288bn by September 2022.

Adani has repeatedly denied that his longstanding connection with the prime minister has led to preferential treatment, as has the Indian government.

Yet a document unearthed by the OCCRP and seen by the Guardian suggests the SEBI, the government regulator now in charge of investigating the Adani Group, was made aware of stock market activity using Adani offshore funds as far back as early 2014.

In a letter dated January 2014, Najib Shah, the then head of the Directorate of Revenue Intelligence (DRI), India’s financial law enforcement agency, wrote to Upendra Kumar Sinha, the then head of the SEBI.

“There are indications that [Adani-linked] money may have found its way to stock markets in India as investment and disinvestment in the Adani Group,” Shah said in the letter.

He noted that he had sent this material to Sinha because the SEBI was “understood to be investigating into the dealings of the Adani Group of companies in the stock market”.

However, a few months later, after Modi was elected in May 2014, the SEBI’s apparent interest seemed to disappear, a source working for the regulator at the time said.

The SEBI has never publicly disclosed the warning given by the DRI, nor any investigation it might have conducted into the Adani Group in 2014. The letter appears to misalign with statements made by the SEBI in recent court filings in which it denied there were investigations into the Adani Group before 2020, as well as saying suggestions it had investigated the Adani Group dating back to 2016 were “factually baseless”.

The ability of the SEBI, a regulator under the purview of the Modi government, to independently investigate the Adani Group has recently been called into question by critics, lawyers and the political opposition.

People burn effigies of Gautam Adani and Narendra Modi during a protest in Kolkata. Photograph: Sayantan Chakraborty/Pacific Press/Rex/Shutterstock

According to a report given in May to the supreme court – which set up an expert committee to investigate the Adani Group after the publication of the Hindenburg report – the SEBI had been investigating 13 offshore investors in the conglomerate since 2020 but had “hit a wall” in trying to establish if they were linked to the Adani Group. Two of the entities under investigation are EIFF and EMRF.

The regulator has been accused of dragging its feet in their investigation into possible violations by the Adani Group, seeking several extensions. On Friday, the SEBI submitted a report to the supreme court stating that their investigations were in the final stages but did not reveal any findings.

The Adani Group said: “The provocative nature of the story and the proposed timing of its publication, when the allegations in it are entirely based on matters which are already under a formal investigation by SEBI and is at the verge of finalisation of the report and while the honourable supreme court hearing is also scheduled shortly; makes us believe that the proposed publication is being done wilfully to defame, disparage, erode value of and cause loss to the Adani Group and its stakeholders.

“Further, it is categorically stated that all the Adani Group’s publicly listed entities are in compliance with all applicable laws, including the regulation relating to public share holdings and PMLA [Prevention of Money Laundering Act].”

A spokesperson for the two funds that invested in Adani stocks – EIFF and EMRF – said the funds had not been “involved in any wrongdoing generally and particularly in connection with the Adani Group”.

It added: “Both the funds had multiple investments across asset classes like equities, mutual funds, alternate investment funds, bonds etc. Amongst these, EIFF and EMRF had investment in equities of the Adani Group, apart from other investments. EIFF and EMRF received subscriptions from Global Opportunities Fund Limited (GOF) which was a broad-based fund as per declarations received. GOF fully redeemed all its participation in EIFF in March 2019 and EMRF in March 2020.”

The SEBI did not respond to requests for comment.

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The end of an era of cheap money?

Nicole Bullock, Eric Platt and Alexandra Scaggs in The Financial Time


For more than a decade, Mike Schmanske made a living trading “volatility” — betting on the size and speed of moves in the US stock market. After 2014, the market was calm for so long that he spent much of his time sailing a Swan yacht. He got his adrenalin flowing in a different way: on his first trip from Bermuda to Newport, Rhode Island, he raced a hurricane back to port and made it with 12 hours to spare. 

Now, a new bout of turbulence is pulling him back to Wall Street. A sharp outbreak of volatility has written more than $5tn off the value of global stocks in less than two weeks and Mr Schmanske is talking to his old trading buddies about getting back into the market. 

“This is the most calls I’ve taken in years,” says Mr Schmanske*, a pioneer of some of the first volatility trading products while at Barclays and now a consultant. “Things were slow. I was literally on a boat a few weeks back.” 

The catalyst for the volatility surge came at 8:30am last Friday when the US government employment report showed a surprisingly strong rise in wages, prompting bond yields to shoot upwards and the price of those bonds to fall. Within hours, the losses in the $14tn Treasury market had spread to stocks, setting the stage for Wall Street’s worst week in two years.** By Thursday, US equities had entered what is known as a correction — a fall of at least 10 per cent. Many investors who had piled into esoteric instruments that enable them to bet on continued calm in the market had been wiped out. 

The ructions over the past week have attracted so much attention because they strike at the question that has haunted markets for the past two years — what happens when the economy returns to normal? Since the financial crisis, markets have been boosted by an unprecedented mixture of ultra-low interest rates and asset-buying by central banks in a bid to fend off the threat of deflation. But with global growth robust and inflation beginning to re-appear, central banks are pulling back. 

The question investors are trying to answer is how much of the sharp drop in share prices is due to a technical reaction driven by a much-hyped niche in the market that bets on volatility, versus part of a broader adjustment to a different economic reality. 

“The system has changed,” says Jean Ergas, head strategist at Tigress Partners, who said the market had made more of a “rethink” than a correction. “This is the unwinding of a massive carry trade, in which people borrowed at zero per cent and put money into stocks for a yield of 2 per cent.” 

The year began on a euphoric note as a large cut in US corporate tax prompted investors to mark up their expectations for earnings growth. The economy was already humming around the world for the first time since the financial crisis. 

At its peak on January 26, the market values of S&P 500 companies had surged by $5tn from a year earlier, while global stocks were up by nearly $14tn. The gains lured small investors into the market, with more than $350bn pumped into equity funds in the year, according to fund tracker EPFR Global. 

But cracks had already appeared in the bond market. Investors were starting to make noise and demand higher yields. Bill Gross and Jeffrey Gundlach — two well-known money managers in fixed-income markets — both declared last month a new era after a 36-year “bull market” in bonds, which had seen yields driven steadily lower. 

It was against that backdrop that markets reacted to last Friday’s news of a 2.9 per cent rise in US wages — not dramatic in a different era but still the largest year-on-year rise since the financial crisis. Inflation fears rose. Investors began marking up the odds that the Federal Reserve could tighten policy by a full percentage point this year, more aggressively than previously thought. Robust growth in Europe and Japan also raised the question of when the European Central Bank and Bank of Japan would begin to remove crisis-era stimulus. 

“Inflation fears running back into the market and hitting basically all assets in a market that had run up significantly is a pretty plausible, simple story,” says Clifford Asness, co-founder of AQR Capital Management. “You do not have to go looking for Alger Hiss in this pumpkin.” 

By the end of last Friday, yields on benchmark 10-year US Treasuries had hurdled above 2.8 per cent for the first time in nearly four years. For the year, yields had risen more than 40 basis points, increasing the appeal of bonds relative to stocks. The Dow Jones Industrial Average lost 666 points — an unsettling omen for religiously minded traders. 

“Optimism over synchronised global growth and supportive macro conditions led to outsized gains in equity markets to start the year,” says Craig Burelle, macro strategies research analyst at Loomis Sayles. “But more recently, some investors worried the economic momentum was too much of a good thing, and optimism gave way to concerns about the future path of inflation and interest rates.” 

Before long, the anxiety had gone global. On Sunday evening, many Americans were watching the Philadelphia Eagles upset the New England Patriots in the Super Bowl: at the same time, Asian markets were opening on Monday with a spike in bond yields. 

“On any other Sunday night you might have been more anxious about what you were seeing,” says Matt Cheslock, a trader at Virtu and a 25-year veteran of the New York Stock Exchange. “The game provided a nice distraction.” 

Monday morning in the US added a new source of uncertainty with the swearing in of Jay Powell as the chairman of the Federal Reserve, bringing a relatively little-known face to lead the central bank. For much of the day, Wall Street avoided serious losses. Then, a big drop seemed to come out of nowhere. About an hour before the closing bell, the Dow slumped more than 800 points in 10 minutes. 

“The adrenalin kicks in,” says Mr Cheslock. “Everyone gets sharper. The complacency is long gone.” 

Customers rushed to log into their accounts at Vanguard, TD Ameritrade, T Rowe Price and Charles Schwab, straining websites. Some were unable to place orders. 

“As the volatility picks up and the indices plummet the rumours start to swell,” says Michael Arone, chief investment strategist at State Street Global Advisors. “Folks are wondering the classic Warren Buffett line about when the tide goes out, you see who is not wearing swimming trunks.” 

Over the past week, the investors who have been left most exposed are those who had made bets on subdued volatility. As share prices slumped, Wall Street’s “fear gauge” — the widely watched Cboe Vix volatility index — spiked. 

Trading strategies that profited from the calm in markets during 2017 quickly unravelled. Two exchange-traded products that enabled investors to bet on low volatility lost nearly all their value on Monday. 

After the bell on Monday, the Vix continued to rise and shares in vehicles related to Vix also fell. 

On Tuesday morning, Nomura, the Japanese bank, said in Tokyo that it would pull a product that was pegged to S&P 500 volatility. Within half an hour, the Nikkei 225 had fallen 2.5 per cent, which, in turn, prompted a bout of selling in bitcoin. The digital currency — worth more than $19,000 as recently as December — dropped below $6,000 just after 2:45am in New York, as traders in London and Frankfurt were getting to their desks. Stock markets in both countries would open 3.5 per cent lower. 

As US investors slept, the turbulence continued. At 4am in New York, a number of exchange traded products related to volatility were halted. By 7:11am, more than two hours before the US open, the Vix volatility index shot above 50 — only the second time it has done so since 2010. The turbulence forced bankers to postpone a number of bond sales planned for the day. Then Credit Suisse said it would close an exchange traded note, known by the ticker XIV — which is designed to move in the exact opposite direction to the Vix each day, and had thus collapsed as volatility rose. 

“People had forgotten that stocks don’t just go up,” says Adam Sender, head of Sender Company and Partners, a hedge fund. “Corrections are a normal process. This was inevitable. Interest rates rising was the trigger, but short-volatility was the fuel.” 

The volatility subsided amid a Tuesday afternoon rally in New York, and world stock markets survived much of the next day without incident. But then at 1pm on Wednesday in New York, signs of nervousness re-emerged. Demand at the auction of US Treasury bonds was weak, a signal that investors were worried about inflation and a rising budget deficit, and would therefore only buy at higher yields. Stocks ended the day in the red, and when investors in Tokyo returned on Thursday, prices dropped quickly. Heavier selling ensued on Wall Street. By Friday morning, the main indices in the US, Germany and Japan were all down more than 10 per cent from their January highs. When trading finally closed for the week after another rollercoaster day, US losses were shaved to about 9 per cent. 

For some, the shock created by the collapse of the volatility products has been salutary. “It’s always good to be reminded of these things with accidents that aren’t of systemic importance to the entire economy,” says Victor Haghani, founder of London’s Elm Partners and an alumnus of Long-Term Capital Management. “It’s a gentle reminder from the market.” 

However, many investors believe the questions raised over the past week go well beyond the products connected to the Vix index. “We’ve gone from a market used to playing checkers — rising earnings, low rates equals higher prices — to being forced to compete in grandmaster three-dimensional chess: worries over growth versus rates, equity valuations, and the strength of the dollar, and now market structure concerns,” says Nicholas Colas, cofounder of DataTrek, a New York research group. 

While some investors talked of a buying opportunity, believing that faster economic growth and a modest uptick in inflation represent a positive backdrop for equities, many headed for the exits. Investors pulled more than $30bn from stock funds in the week to Wednesday, the largest week of withdrawals since EPFR began tracking the data at the turn of the century. 

The slump in share prices put the White House on the defensive, given that President Donald Trump has taken pride in the stock gains under his administration. “In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down,” he tweeted on Wednesday. “Big mistake, and we have so much good (great) news about the economy!” 

Others were less confident. “This is not yet a major earthquake,” said Lawrence Summers, US Treasury secretary under President Bill Clinton. “Whether it’s an early tremor or a random fluctuation remains to be seen. I’m nervous and will stay nervous. [It is] far from clear that good growth and stable finance are compatible.” 

Some strategists expect the recent declines to lead to further selling, as computer-driven funds that target volatility are forced to shed more equities. Analysts put the amount of automatic selling from the recent turmoil at about $200bn, and more could be on the way unless markets simmer down. 

Jonathan Lavine, co-managing partner of Bain Capital, says a drop in share prices was not a surprise in itself. “It was the ferocity of the move, not triggered by any material news and propelled by a small corner of financial markets,” he says. “You have to ask yourself what would happen in the event of real bad news.”

This is how the price of shares is really decided

Satyajit Das in The Independent



Equity investors – who have enjoyed strong gains over the past eight years – are unlikely to question the merits of stocks as an investment. US stock markets have tripled in price since 2009. In nominal terms the Dow Jones Index is up 70 per cent from its peak in January 2000. But 17 years later it is up only 19 per cent in real (inflation-adjusted) terms.

Investors rarely scrutinise the driver of equity returns. In reality stock markets have changed significantly over recent decades, driven by artificial factors that result in manipulated and unsustainable values.

The traditional functions of the stock market include facilitating capital-raisings for investment projects, allowing savers to invest and providing existing investors with the ability to liquidate their investments when circumstances require. Unfortunately, a number of factors now undermine these functions.

First, equity markets have increasingly decoupled from the real economy. Equity prices now do not correlate to fundamental economic factors, such as nominal gross domestic product or economic growth, or, sometimes, earnings.

Second, equity markets have become instruments of economic policy, as policymakers try to increase asset values to generate higher consumption driven by the “wealth effect” – increased spending resulting from a sense of financial security. Monetary measures, such as zero-interest-rate policy and quantitative easing, distort equity prices. Dividend yields that are higher than bond interest rates now drive valuations. Future corporate earnings are discounted at artificially low rates.

Third, the increased role of HFT (high frequency trading) has changed equity markets. HFT constitutes up to 70 per cent of trading volume in some markets. The average holding period of HFT trading is around 10 seconds. The investment horizon of portfolio investors has also shortened. In 1940 the average investment period was seven years. In the 1960s it was five years. In the 1980s it fell to two years. Today it is around seven months. The shift from investing for the long run has fundamentally changed the nature of equities, with momentum trading a larger factor.

Fourth, the increasing effect of HFT has increased volatility and the risk of large short-term price changes, such as that caused by the 7 October “flash crash”, discouraging some investors.
Fifth, financialisation may facilitate market manipulation, with the corrosive impact of insider-trading and market abuse eroding investor confidence.
US federal investigators found a spider’s web of insider-trading exploited by a small group of funds that benefited twice: from both trading profits and artificially enhanced returns. These, in turn, generated more investments and higher management fees. The investigations revealed expert network firms, which provided “independent investment research”. Redefining the concept of expertise, these firms seemed to specialise in matching insiders with traders hungry for privileged information, routinely allowing access to sensitive information on sales forecasts and earnings.

Regulators suggested that the practice was so widespread as to verge on a corrupt business model. Reminiscent of the late 1980s investigations into Drexel Burnham Lambert, Ivan Boesky and Michael Milken, the clutch of prosecutions has created an impression that a small golden circle of traders have an information edge, disadvantaging other, especially smaller, investors.

Finally, alternative sources of risk capital, the high cost of a stock market listing, particularly increasing compliance costs, increased public disclosure and scrutiny of activities including management remuneration as well as a shift to different forms of business ownership, such as private equity, have changed the nature of equity market. New capital raisings are increasingly viewed with scepticism as private investors or insiders seek to realise accreted gains, subtly changing the function of the market. The problems are evident in both the primary markets (lower numbers of initial public offerings of new shares) and in the secondary markets (reduced market turnover).

The recent Snapchat IPO illustrates the trend. Snap, a young, still unprofitable company, saw its shares soared 44 per cent on its first day of trading, although it fell sharply subsequently. Shareholders providing capital will not be able to control the company, as company insiders have not given common stockholders voting rights, which is inconsistent with conventional corporate governance models. In technology-intensive sectors, for example, entrepreneurs, such as those associated with Snap, now use IPOs to either facilitate exits for venture capitalists and founders, create a currency in the form of listed shares to compensate or finance acquisitions, or raise cash to fund shortfalls between revenue and expenditure.

The declines are symptomatic of the problems of excessive financialisation. Financial instruments, such as shares and their derivatives, are intended as claims on real businesses. Over time, trading in the claims themselves have become more rewarding, leading to a disproportionate increase in the level of financial rather than business activity. Longer term, the identified developments threaten the viability of the stock market as a source of capital for businesses and also as an investment, damaging the real economy.