Thread by @vijayvenkatram

#ShortSelling is not natural investing and is beset with #risks that are also not usual. One needs to go beyond the usual fundamentals that we look in #investing.

So a short seller is usually very careful and has to time it right for it to be successful!

#adani

(1/n)

You start with looking for vulnerable businesses.

Vulnerability can come from - Excessive valuations, leverage, systemic liquidity, specific liquidity, regulatory change, political regime change, governance issues, loan against shares or margin and the list is long.

(2/n)

While many of the factors are known, some are very time dependent

Considering that most factors that @hindenburgres cited in its long report is known, one factor that matters is “liquidity”.

So choosing the timing of their reveal is critical and is not a coincidence.

(3/n)

There is a very large FPO to start.

What does it mean for liquidity. Typically an FPO sucks out the potential secondary market buyer, leaving very less support.

This transaction being huge, the liquidity impact in the secondary would be significant.

(4/n)

Its not by coincidence that they chose to reveal now.

They had to increase the odds in their favour. There is nothing evil or altruistic here.

Its just how the shorting game is played.

(5/n)

Considering very low institutional holding, a report of this nature will shake the confidence of the retail investors and its more than sufficient to lead them scrambling to the door.

The damage is done.

(6/n)

What is interesting is that @HindenburgRes holds "short positions" in Bonds. Indian $ bonds are usually very thinly traded with practically no secondary trading!

Even if they had built the bond shorts over a period of time, I would be keen to see how they unwind shorts

(7/n)

The comments that we see on social media, that the short seller is anti-India or Adani is India’s pride et al are uncalled for.

Once the stock is listed and its on F&O, investors/ traders can express their preference by investing in / trading the right instrument.

(8/n)

Market will let us know in a few days/ weeks as to who is right! Till then follow the story and learn a thing or two!

(9/n)

And if you are a retail investor, doing good to yourself will do good to the economy.

Invest in what your believe in and stay away from making risky bets (or size them small)!

More better - go with MFs.

(10/n)

And finally do not mix your political views with investing. It will damage your wealth.

Remember the politically affiliated influencer from Chennai that called for #NIFTY going to 3000 or so during the #CoVid crisis.

(11/n - End)