Adani Hindenburg Row: Why Kotak Mahindra Bank's Stock Jumped 2% After Losing Rs 7,700 Crore M-Cap?

Private sector lender, Kotak Mahindra Bank has been roped into the Adani-Hindenburg. Bittered over market regulator Sebi's mail to them, the US short seller made fresh allegations against Adani and this time it involved an Uday Kotak-backed private bank. The impact was seen on Kotak shares after the Hindenburg report, however, on Wednesday, this banking stock emerged as among the top gainers with an upside of nearly 2%.

At the time of writing, Kotak Bank's share price stood at Rs 1794.65 apiece, up by 1.42% on BSE. The stock gained over 1.7% to an intraday high of Rs 1794.65 apiece in the early deal.

Overall, on July 3, Kotak's market cap gained by more than Rs 6,015 crore in early trade to about Rs 3,57,803.43 crore compared to m-cap of Rs 3,51,787.86 crore.

On the previous day, Kotak's stock ended at Rs 1,769.60 apiece, down by 2.2% on BSE. On July 2nd, the m-cap dropped nearly Rs 7,770 crore.

Why Kotak Bank Shares Rallied On July 3?

The uptrend comes after Kotak Bank's clarification over a new accusation by Hindenburg.

In its regulatory filing, Kotak said, "We would also like to bring to your attention that SEBI has issued a show cause notice dated June 26, 2024, to Hindenburg, Kingdon, persons related to them as well as K India Opportunities Fund Limited - Class F (the "Fund") (a SEBI registered FPI managed by Kotak Mahindra (International) Limited ("KMIL")),
which was received by KMIL today (i.e., July 2, 2024)."

Kotak added that SEBI's allegations relate to short selling of the stock of Adani Enterprises Limited before the publication of a report by Hindenburg on January 25, 2023.

Further, Kotak clarified that the transactions in respect of which the above allegations are being made were made by the Fund on the advice, and for the benefit, of its investor Kingdon.

As per Kotak, KMIL was informed by Kingdon that the transactions were made on a principal basis, i.e. for themselves. Kingdon never disclosed that they had any relationship with Hindenburg nor that they were acting based on any price-sensitive information. They had expressly confirmed that any advice from Kingdon to invest would be based purely on public information.

Hence, Kotak said that neither the Fund nor KMIL was aware that Kingdon entities, which include a US SEC registered investment advisor, in respect of whom KYC as per law was duly performed, had any association with Hindenburg. The Fund and KMIL had no prior knowledge of the publication of the aforesaid Hindenburg report.

Accordingly, Kotak denied any allegation of being aware of such a report or acting in collusion in any manner with Kingdon or Hindenburg.

Hindenburg-Kotak Bank:

Kotak was grappled amidst Adani Hindenburg Row after the short seller pointed out an email by Sebi that was sent on June 27, to which Hindenburg said, 'bizarre'.

Hindenrbug's report dated July 1 said, "On the morning of June 27, 2024, our firm received a bizarre email, ostensibly from SEBI, alerting us that SEBI had flagged its own message to us that we never received as an apparent security risk, and that the regulator had "quarantined" it for its own safety."

Hindenburg said, "We had anticipated fierce opposition to our report before we ever published it, regardless of how comprehensive and truthful our body of evidence was."

According to Hindenrburg's report, While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India's largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead it simply named the K-India Opportunities fund and masked the "Kotak" name with the acronym "KMIL".[2]

Further, the report said Uday Kotak, founder of the bank, personally led SEBI's 2017 Committee on Corporate Governance.

Hindenrbug accused that it suspects SEBI's lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace.

On Adani, Hindenburg's note said, "To This Day Adani Hasn't Directly Addressed The Findings From Our Research Or From Dozens of Media Investigations, Instead Offering Deflections And Blanket Denials."