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A NEW PERSPECTIVE TO THE SUCHETA DALAL- ADANI GROUP CONTROVERSY

What is Sucheta Dalal and Adani group Controversy?

Twitter is famously known to make crypto prices juggle, but recently it made the Adani Group’s stocks hit the lower circuit. On June 12th, eminent business journalist Sucheta Dalal, who broke the 1992 Indian stock market scam, posted an obscure tweet hinting towards the relentless price rigging of one group by a foreign operator. After two days of calm, on June 14th, Economic times reported that three major FPIs (Foreign Portfolio Investments) - Albula Investment Fund, Cresta Fund and APMS Investment Fund have been frozen by National Securities Depository Limited (NSDL), on or before March 31st. Though NSDL’s website stated no reasons for such freeze, the report attributed this to insufficient disclosure of information regarding beneficial ownership as per the Prevention of Money Laundering Act (PMLA).

This was followed by a series of events raising speculations about the connection between the tweet and Adani’s possible price rigging as the three funds are among the top investors of Adani Group entities with shares ranging from 2.1 per cent to 8.91 per cent. Before the dip, their stake in five Adani group firms was worth $7.78 billion i.e. around Rs. 43,500 crores. These events lead to chaos among investors, and blatant shedding of stocks where the group saw wealth deterioration of $7.3 billion.

Following this turmoil, the Adani group issued a letter to BSE and NSE for the larger public interest, stating that the report published by Economic Times is plainly false, and is done on purpose to mislead the investment community. Simultaneously, a media release to gain stakeholders’ trust again, was also posted by the group. To clear the air further, NSDL later on Monday (June 14th 2021), clarified that the three FPI accounts were frozen but no further action was taken and thus the same are currently in ‘active’ status.

However amid these clarifications also, investors and analysts are being very cautious owing to the fact that all these funds are incidentally based in Mauritius and the concentration of majority investments of these FPIs is in only one group i.e. Adani. Also, in the last year, Adani Group saw a sudden sharp rise in its wealth majorly through the pick-up in stocks. Concerning information disclosure, these funds do not have an active website and only minimal disclosure is available on the internet. And lastly, NSDL in its clarification failed to provide the possible reasons as to why in the first place such accounts were frozen, and if so, why no action was taken against them.

SEBI or the Finance Ministry has made no statements regarding the controversy till now and no other follow up was posted by Sucheta Dalal.

Ramifications Of The Event On Comman Man

A single tweet from Sucheta Dalal on June 12 caused a significant drop in the shares of the Adani group of companies. Shares of Adani group companies fell by about 5% to 25% on Monday, while business journalist Sucheta Dalal was trending on Twitter. Sucheta Dalal published a big tweet on Saturday implying a "scandal" without specifying any names or groups. While her post went viral, it's been speculated that it had a significant impact on the stock price of Adani.

The effect of this fake news had a very significant impact on the investors. The value of billionaire Gautam Adani's company plummeted by more than $6 billion. This chaos not only affected the Company but the retail investors also took a hit and lost a significant amount of their wealth. The investors lost more than One Lakh Crores in just an hour.

No doubt, the publication of these unverified reports and tweets is dangerous to the common man who invests his hard-earned savings in the market and expects a good return. But we should look at the benefits too as these situations present the investors with a presentiment warning. Many people invest in the market with a mistaken belief that they might receive unrealistic gains amounting to 100%, 200% which happens only rarely. The past year for the Adani group has been great, many of the companies gave more than 900% returns in just a year but this is just a rare phenomenon. The shares that give unrealistic gains also tend to fall in a short period. A lot of retail investors were attracted to the Share Market last year but the drop of this kind renders them a setback and warns them to go for the business and companies they understand and invest in them intending to earn real-world returns of 10% to 20% per annum.

The Government of India provides freedom of speech and expression to the citizens, which are, undoubtedly, one of the most important rights in a Democracy. But misusing this right using social media handles like Twitter to manipulate the market is absurd and highly unfair. Right to Freedom of Speech must be treated with the highest regard. The said right should not be seen as a license for its arbitrary application, because the holding of rights entails a responsibility to exercise them responsibly. The right to free speech and expression, like all other rights, must be exercised responsibly so as not to harm those having equal rights. In the present scenario, the Tweet posted by the famous business Journalist Sucheta Dalal hinting at a scandal, and then a report published in the Economic Times working as fuel in the fire, without any backing by any substantial evidence was highly irresponsible.

Technology Responsible For Fluctuations In Price Of Stock

Technology has had a significant impact on people's lives, and it is widely acknowledged as having enhanced our social lives, businesses, governments, and educational systems. Due to the advancement of data intelligence technology, anyone can process and analyze massive volumes of online data. By examining and observing data from social media sources, the dots can be connected between market movements, with regards to stock-related communication.

The financial industry, like most of the other industries, communicates by exchanging information and data via the Internet, and gradually through social media. People engaging through social media produce emotional data by tweeting, posting on forums, and blogging their thoughts and emotions. Scientific studies demonstrate that people's decisions and actions are partly impacted by the information they receive. The financial markets are based on anticipation, and investors purchase and sell stocks based on the sentiments of fear or desire caused by some event. Even though the information is not always trustworthy and reliable, investors depend on the credibility of social media sites that disseminate rumors and this process leads to the heavy fluctuations in the stock market.

Tweets Without Proofs Make Markets Volatile

Investors' sentiments and reactions towards information posted on social media affect their decisions to purchase or sell financial assets, particularly in the stock market. Whether news communicated through social media is credible or not, it causes changes in the patterns of worldwide stock market indexes. There are several examples of Twitter being used to communicate information that very rapidly causes widespread emotional market reactions.

Twitter sentiments affect the behavior of investors and contain relevant information which is not yet reflected in stock prices. The study of polarity on Twitter can predict financial market behaviour. Investors' reactions are influenced by information published on Twitter, which has a positive or negative impact on stock prices, as well as upward or downward trends.

The market has become riskier as a result of the price volatility caused by Twitter sentiments. There have been many instances where just a tweet highly impacted the stock market. For instance, Sucheta Dalal, a journalist, made a tweet that potentially led to a drop in Adani Group’s stocks. The tweet doesn’t mention any company or group and also not provided any proof against the company, but led to 25% dip in Adani Enterprises. Similarly, Elon Musk’s series through Twitter of announcements on cryptocurrency or bitcoins, have influenced and triggered price fluctuations. Also, in 2016, when Donald Trump tweeted about cost overruns in Lockheed Martin's programmes, the stock dropped 5% right afterward.

A prior study found evidence that Twitter sentiment had predictive power over stock performance and confirmed that investor under-reaction is linked to forecasting accuracy. Microblogging sites like Twitter have initiated a global technological race among hedge funds and sophisticated investors, and in the future, the value will be determined by the complexity and speed of data analytics rather than a monopoly on the data source.

Conclusion

In the recent times, we have seen Elon Musk, who is involved in the fluctuation of famous cryptocurrencies like Bitcoin, Dodgecoin etc. by his single tweet. However, this controversy went a little further whereby listed stocks were affected due to a single tweet. The way forward in this situation lies in re-assessing the whole scenario and concluding as to how much freedom is excess freedom on Social Media handles. If tweets (even without proof) have the power to shake the stock market, then it remains to see as to what ought to be the threshold while making such claims in the future!


This article is a post from the admin @ Tech & IP Law Policy Review.