 Many of you who have been following the ups and downs of the Dhani story since the Hindenburg report hit the headlines, might have come across the term short selling for the first time in your lives. If you want to know what short selling is, watch this video, it will take just 5 minutes of your time. First, let's quickly understand what the buying and selling of shares is all about. Companies go to the stock markets to sell shares to the general public and raise money from them. Anyone investing in a company's shares is technically part owner of that company. For instance, if a company has issued 10 lakh shares and you own a thousand of them, then you effectively own 0.1% of the company. Of course, that's not enough for you to have any say in the way the company is run or what it produces, but by owning 0.1% of the stock, you're theoretically entitled to 0.1% of the company's profit. Now, the reason why people invest in a company's stock is because they're betting on the business. They're hoping that the company will grow, its products will sell in newer markets and its sales will increase and this will help it make profits and build new assets which will increase its net worth and as that happens, the stock price will also rise to reflect the company's growing valuation. So if a company's total worth is 1 crore rupees and it has issued 10 lakh shares, then each share is worth 10 rupees. Let's assume that the company's earnings grow at 10.5% per year, then in 7 years, its valuation will double to 2 crores and each share will also double in value to 20 rupees. So, a normal transaction in the stock market bets on the share price of a company going up. This is called going long in stock market parlance. Going short or short selling is the exact opposite. A short seller is someone who bets that a company's shares or even the entire market itself will go down instead of rising, but you will ask how is that even possible to do that. I mean, if you buy a stock and its price goes down, you're going to lose money, right? Why would anyone go short or to ask the same question differently? How can you make money when the stock price drops? You can if you sell first and buy later. Now that sounds impossible, right? How can you sell a stock before you buy it? You can if you borrow the shares from someone else who already owns it. Typically, this will be a broker who has access to shares held by their clients. Now imagine the scenario. Let's think of a hypothetical cotton supplying company and call it Ajanta cotton. In this hypothetical world, each share of Ajanta cotton is selling for 100 rupees in the market. Now you live in a cotton crop growing area and you get early information that there's going to be a bumper cotton crop this year which means cotton prices are likely to crash. So, you anticipate that Ajanta cotton will have problems. Its profits would drop sharply. It might even make losses. Your bet is that this earnings crisis will drive the share price of Ajanta cotton down in the immediate future. So you go to your broker and say, I would like to borrow 1000 shares of Ajanta cotton from you and I will return them in one month from now. Your broker says, alright but I will charge you interest for this one month. 1000 shares at 100 rupees each is 1 lakh rupees. Interest on that for a month will be let's say 1000 rupees. You agree and take the shares and immediately sell them in the market and get that 1 lakh rupees from the market. Now you wait for the share price to fall. In 25 days your prediction comes true and the share price of Ajanta cotton drops from 100 to 80 rupees. You now buy back the 1000 shares from the market. All you paid now is 80,000 or 80,000 rupees. Now remember you made 1 lakh rupees when you sold the shares you had borrowed 25 days ago. 1 lakh minus 80,000 is 20,000 rupees. So you made a profit of 20,000 rupees by betting on the share price going down. Of course you have to pay the 1000 rupees as interest to your broker when you return the 1000 shares. So net of the interest paid you still make 19,000 rupees on a falling stock. This is what is known as shorting a stock or short selling. This is exactly what Hindenburg has bet on that the Adani companies are over bloated. That the market value is much more than they should be and they will fall sooner or later. And till now the Hindenburg attack has succeeded. It has wiped out more than half of the market capitalization of the Adani conglomerate and pushed Gautam Adani far down in the global rich list. The short seller is winning right now but we'll have to wait and see how long that lasts. That's the show today. Press the like button and comment on this video. Subscribe to our channel and press the bell icon so that you can get notified every time a new video drops. Until next time, goodbye.