Were India’s stocks manipulated before election results?

On 4 June 2024, the day it become known that India’s ruling party, the BJP led by Prime Minister Narendra Modi, would return to power for a third five-year term but as a weaker head of government, the prices of the shares of Adani Group companies collapsed amid a general meltdown of the country’s stock markets. Opposition politicians have called for an inquiry into allegations of stock-price manipulation.

The story starts on Friday 31 May when there was frantic buying and selling of shares in the country’s biggest bourse, the National Stock Exchange (NSE). The total volume of trade on the NSE doubled compared with the previous day. It included vigorous trade in Adani stocks. The last occasion something like this happened was a decade earlier, on 16 May 2014, when it became known that Modi would become the Prime Minister of India with the BJP winning more than a majority of the 543 seats in the Lok Sabha. This occurred after an era of coalition politics lasting over 25 years during which no single party had won more than the half-way mark of 272 seats.

In the 2024 election, however, the number of seats won by the BJP crashed from 303 to 240. Modi is, for the first time, heading a coalition government. This became known on 4 June. But wait! Before this took place, an unusual development took place.

The doubling of trading volumes on 31 May was largely on account of buying and selling of shares by foreign institutional investors (FIIs) who accounted for almost 60% of the total trade on the NSE that fateful day. Why? Because during the preceding weeks and days, FIIs were rather lukewarm about trading on the NSE because of uncertainty about the outcome of the elections. In fact, the week leading up to 31 May saw FIIs as net sellers.

The next two days were hectic, but not on the stock exchange as it was closed over the weekend. On Saturday 3 June, the seventh and final phase of the general elections ended. On Saturday evening, opinion pollsters announced their analysis of the ‘exit polls’.

In exit polls, the views of a sample of voters after voting are analysed.  It is a separate matter that pollsters often do not disclose details of the number of voters whose views were considered or their socio-economic background since they are not legally bound to do so.

Opinion polls go spectacularly wrong, markets collapse

On 1 June, the exit polls predicted a sweeping and spectacular victory for the BJP and the coalition it heads – that is, the National Democratic Alliance (NDA). A few pollsters even claimed that the NDA would win 400 or more seats in the 543-member Lok Sabha – an expectation that Modi had been orchestrating in his campaign speeches. But both Modi and the pollsters were way off the mark. The number of victorious MPs belonging to the BJP had slipped below the half-way mark and the number of victorious MPs belonging to the biggest political party in the Opposition coalition, the Indian National Congress, almost doubled from 52 to 99.

The day before the election outcome was announced, Monday 3 June, the stock markets went wild, and indices touched record heights. The next day, 4 June, the collapse of the share markets was equally spectacular, led by the stocks of the Adani Group.

The combined loss of market capitalization was as much as Rs 3,000,000 crore (an extraordinary US $359 billion). Although the figure is notional, this humungous amount is equivalent to just under 10% of India’s current gross domestic product (GDP). This was the biggest-ever fall in the history of India’s stock markets.

Interestingly, the fall in the prices of Adani Group stocks was more pronounced than the overall decline in stock-market indices. Thus, while the benchmark indices of the NSE and the Bombay Stock Exchange fell by nearly 6 per cent and over 5.7 per cent respectively, the combined market capitalization of the companies in the Adani Group fell by around 18 per cent or Rs 250,000 crore (US $30 billion). On 31 May, the Group’s market capitalization had soared by approximately 12%.

Call for an investigation                

Congress party leader Rahul Gandhi, who has been a prominent critic of the Modi government’s alleged favours to the Adani Group, did not mince words. Speaking to journalists at the party’s headquarters, he said: ‘You can see the correlation of Modi and Adani, (the fall in the prices of) Adani stocks after Modi’s loss. So, people have understood the relationship.’

Writing in the Deccan Herald daily newspaper, Congress functionary Praveen Chakravarty wrote that by the time the stock exchanges had witnessed ‘the highest fall ever in its history…the foreign investors had sold their shares and made massive profits’, while the ‘vast majority of retail investors (common people) saw their share value decline, and suffered huge losses’.

He added that this was ‘just the simpler side of the story’.

‘The other, more technically complex, side to this saga is that there was also enormous profiteering through speculation in the stock markets using share derivatives, through which investors can profit from both the rise and the fall in the stock markets,’ according to Praveen Chakravarty. ‘These investors in derivatives gain the most when there is tremendous volatility, which is exactly what the Indian stock markets experienced between exit polls and actual results. Data shows there was huge trading in derivatives, too, between 31 May and 4 June.’

(Simply put, ‘derivatives’ are complex financial instruments that derive their prices from other financial instruments and are traded on stock markers in the form of ‘futures’ and ‘options’ that are akin to bets taken at a specific point of time and redeemed at a predetermined point of time in the future.)

In the days that followed the declaration of the election results, other political leaders opposed to Modi and the BJP called for the establishment of a Joint Parliamentary Committee (JPC) to precede an investigation by the regulator of the financial markets, the Securities and Exchange Board of India (SEBI). Derek O’Brien, MP of the All India Trinamool Congress, wrote a letter to the SEBI Chairperson about how the opinion pollsters were allegedly complicit in the so-called scam:

‘These unrealistic numbers misled investors when the markets, buoyed by the exit-poll predictions, surged massively on Monday, 3 June. The same investors suffered over ₹30 lakh crore in losses when the markets subsequently crashed on the day of results. Agencies conducting exit polls had a huge bearing on the stock markets. Therefore, it is important to know whether any of these agencies had manipulated their predictions to influence the markets. In addition, the issue of whether any individuals or entities involved with the exit polls made huge profits/gains on 3 June merits an investigation as that would (be) tantamount to insider trading.’

Chakravarty pointed out that while specific details about investments made are not disclosed by the stock exchanges on the ground that information about trading by individual clients and entities is treated as confidential, it was far from clear as to why foreign investors ‘suddenly became bullish’.

He raised a series of questions. Did some investors have prior information about what the exit polls would claim? Did they have ‘material, non-public, insider information’ on the exit polls that could have enabled the earning of handsome profits? Was there any association among the media organisations that put out the opinion polls, the pollsters and stock market players?

The Congress functionary recalled that in October 2021, the then Chancellor of Austria had to resign his post after it was disclosed that he had had a role in the rigging of opinion polls.

The BJP’s defence

Spokespeople for the ruling party put up a defence against the allegations by the Opposition leaders. The MP for Mumbai North Piyush Goyal, who is also Union Minister for Commerce and Industry, described the allegations as ‘baseless’ and aimed at ‘hatching a conspiracy to mislead investors out of frustration following the Opposition’s defeat’.

He said that foreign investors had not made a killing on 3 June. Goyal argued: ‘When the (election) results came on June 4, when the market fell, foreign investors sold at a low price and Indian investors bought it with the belief that the Modi government was coming, and we would take advantage of it. So, foreigners bought at a high price and Indian investors sold at a high price and bought at a low price. So, in a way, Indian investors earned even in this period. No one suffered a loss.’

Questionable role of opinion pollsters and media

Opposition politicians were not convinced by the BJP’s arguments. They claimed there was much more to the episode than met the eye. Why did the opinion pollsters not disclose details about their sampling methodology? It was obviously inadequate given that their findings went awry. Were the pollsters truly independent or had they worked for the BJP, and if they had, should they not have disclosed their association?

Pradeep Gupta, who heads a polling firm, Axis My India, broke down in public during a live broadcast on the India Today television channel, after it was pointed out how his findings were completely wrong. He had correctly predicted the results of the two Lok Sabha elections of 2014 and 2019.  

The credibility of the media, too, has taken a beating. On 11 June, the stock market regulator, SEBI, hauled up a senior journalist for manipulation of share prices. Pradeep Pandya, the former ‘markets editor’ of the business television channel CNBC Awaaz was fined an amount of Rs one crore (US $120,000). (CNBC Awaaz is part of the media group owned by the Reliance Industries group led by Mukesh Ambani, who competes with Gautam Adani for the position of India’s richest man.)

Did Prime Minister Modi and Home Minister Shah ‘talk up’ share prices?

During his press conference on 4 June, Rahul Gandhi said: ‘This is the first time the Prime Minister has commented very interestingly and multiple times, one after the other, saying that the stock market is going to boom… Is it their job to give investment advice?’

He then raised a question: ‘…why were interviews given to the same media house, owned by the same business group, which is also under SEBI investigation for manipulating the stock market? … what is the connection between the BJP, the fake exit pollsters and the dubious foreign investors?’. He was obviously referring to the Adani Group.

In an interview with NDTV (a media company that is part of the Adani Group), Prime Minister Modi had expressed confidence that the markets would set new records after 4 June. ‘The more common people come to this field (stock market), the more it will strengthen our economy… Just watch, the day the election results are out, that week… actually, all the programmers in the Indian stock market will be so busy managing the rush,’ he said.

Modi’s right-hand man Amit Shah had told the same media group: ‘Stock-market crashes should not be linked with elections, but even if such a rumour has been spread, I suggest that you buy (shares) before June 4. The market is going to shoot up… We’re going to get over 400 seats; the Modi government will return to power so the markets are bound to rally.’

Shah’s comments were made at a time when the last three phases of the elections had not yet taken place.

To place these remarks in context, in the early-1990s, Manmohan Singh, the then Finance Minister who went on to become the Prime Minister of India, was severely criticized by leaders of the BJP when he remarked that he would not lose sleep if stock markets went up or down. The context of the time was a major scandal involving controversial stockbroker Harshad Mehta. BJP spokespeople said at that time that alarm bells should have woken the finance minister when share prices had shot up. Congress leader Singh was later exonerated by a Joint Parliamentary Committee (JPC), comprising members of all political parties including the incumbent and the Opposition parties.

Today, the shoe is on the other foot. The Congress and other Opposition parties have for months been demanding the formation of a JPC to inquire into the Adani Group’s financial dealings in general. The recent fluctuations in the share market have now become part of the demand.

Divided opinion on who gained

Not everybody agrees with Chakravarty’s view that foreign investors gained the most from the sudden jump in share prices on 31 May and 3 June. Debashis Basu and Vijay NS contended in an analytical article published in the MoneyLife portal that foreigners did not make money and that they lost money instead. ‘Some big investors, hidden under (the) “retail” label are the real gainers,’ they wrote.\

The NSE provides turnover data for the following categories of investors: Banks, Insurance Companies, Mutual Funds (MFs), Alternative Investment Funds (AIF), Portfolio Management Services, Foreign Portfolio Investors (FPIs), Retail and ‘Others’. The retail segment includes Hindu Undivided Families (HUFs), individual proprietorship firms, non-resident individuals and partnership firms/Limited Liability Partnerships (LLPs). ‘Others’ include public and private companies/bodies corporates, a trust or a society, domestic financial institutions (other than banks and insurance), statutory bodies, those under the New Pension System (NPS), non-government organisations, depository receipts, Non-Banking Financial Companies (NBFCs), domestic venture capital funds and proprietary traders.

The MoneyLife article (hyperlinked above) points out that the ‘biggest players’ in Indian stock markets today are domestic MFs, FPIs, retail investors and those coming under the ‘Others’ category. ‘Looking at the data of these four categories from a day before the exit polls to a day after the election results throws up an interesting trend …’ it states, referring to the dramatic upsurge in trading of 31 May and 3 June. It added that the regulator SEBI should investigate the entire episode.

Will investigations take place?

Bengaluru-based investor and activist Arun Agarwal told AdaniWatch that ‘prima facie, the statements made by the Prime Minister and the Home Minister before the elections were over, and to a television channel owned by the Adani Group, seem to violate SEBI’s rules.’

He added that Gautam Adani is perceived to be close to Prime Minister Modi. Agarwal also pointed out that the collapse in the share prices of the Adani Group on 4 June was bigger than the fall that took place on 24 January 2023 after the US short-selling firm Hindenburg Research published a report in January 2023 that was provocatively tilted “Adani Group: How The World’s 3rd Richest Man Is Pulling the Largest Con in Corporate History.”

Not all agree with Agarwal. Doubts have been raised in an article by Diti Pujara published in the portal The Morning Context whether Modi and Shah’s utterances violate SEBI’s regulations on the Prohibition of Fraudulent and Unfair Trade Practices, 2003, and the regulator’s Investment Advisers Regulations, 2013. Given the hesitant way in which SEBI has probed various allegations against the Adani Group, there is no reason to be optimistic about the prospects of an investigation by the regulator into the cause of the wild fluctuations in share prices in late-May and early-June, and who might have benefitted.

The Morning Context published another article by a different writer, Ujval Nanavati, titled ‘The Adani Group’s 10-year Honeymoon Is Over’, part of which read: ‘Just before the 2024 general elections concluded, the group consisted of 10 companies and their combined market capitalization stood at Rs 17.5 lakh crore, which was still below the pre-Hindenburg Research report high of Rs 24 lakh crore in January 2023. That’s a stellar five-year CAGR (compound average growth rate) of 57.4%, even after the Hindenburg hit.  In these five years, Adani has been called Modi’s Rockefeller, America’s first billionaire and someone seen as a ‘robber baron’.’

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