Ajit Karn
Shares of Adani Group companies had another bad day on Dalal Street. Since last week, the total market loss has reached over $100 billion. The massive drop has not only hurt billionaire Gautam Adani’s wealth, but it has also made people worry about how it might affect the domestic stock markets as a whole.
The group’s main company, Adani Enterprises, dropped sharply for the second day in a row after the company cancelled its Rs 20,000 crore follow-on public offering (FPO). Investors were surprised when Adani Enterprises pulled its FPO;
Adani vs Hindenburg
The stock prices of companies in the Adani Group fell by a huge amount after US short seller Hindenburg Research released a harsh report accusing the group of stock manipulation, improper use of tax havens, and even money laundering.
Hindenburg said that it has short positions in Adani Group stocks. It also said that it is worried about the company’s growing debt. Adani Group said that the FPO of its flagship company was cancelled because the market was so unstable, but Hindenburg’s report seems to be the real reason.
Adani Group responded to the US short seller’s report with a 413-page rebuttal, but the stocks of the listed companies in the conglomerate are still falling.
The decision to stop the secondary share sale made things worse, and on Thursday, most Adani Group stocks went down. Adani Enterprises fell the most, by 26.70%, and closed at its lowest level since March 2022.
Adani Group is getting more attention.
The withdrawal of the FPO had an effect on more than just the markets. Politicians from the opposition parties called for an investigation into the Adani Group. Reuters said that the Reserve Bank of India has also put the group on its list of things to keep an eye on.
According to the report, the RBI has asked banks for information about their ties to the conglomerate owned by Gautam Adani. Earlier, another report said that the Securities and Exchange Board of India (Sebi) had begun to look into the recent drop in Adani Group stock prices and some of the problems that were brought up in the Hindenburg report.
As of FY23, the brokerage firm CLSA thinks that Indian banks are exposed to about 40% of the Rs 2 lakh crore worth of Adani Group’s debt. Analysts are worried about what this could mean for the Indian financial sector in the long run.
Also, Citigroup’s wealth unit has stopped giving its clients margin loans against Adani Group securities. The news comes a day after Credit Suisse’s lending arm said that bonds issued by Adani Group companies had no value for lending.
Analysts were worried about the bigger picture.
Analysts are worried about Adani Group’s decision to cancel its flagship company’s FPO even though it was fully subscribed and the price of stocks keeps going down.
Nirav Karkera, Head of Research at wealth-tech platform Fisdom, said, “The FPO was crucial to funding capital-intensive growth projects in key areas like green hydrogen, greenfield motorway construction, and more development work in select airport projects.”
“A portion of the money was set aside to pay off Rs 4,000 crore worth of debt. “The withdrawal of the FPO has not only sped up the need for the money needed to pay off the debt, but it is also likely to slow the growth of businesses that were supposed to start up in the morning,” Karkera said.
“The company seems confident that it will be able to run planned operations and pay off upcoming debt obligations with money from internal accruals. However, it is almost certain that the group will need to slow down its ambitious expansion plan or look for other sources of funding, which would cost more,” he said.
Karkera said, “Market participants seem to be pricing in the fact that the previously estimated growth prospects are being challenged and the likelihood of any upside is at least significantly delayed, if not completely gone in the medium term.”
Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank, told the news agency Reuters that Adani ma;y have caused a “confidence crisis” in Indian shares, which could have effects on the market as a whole.
Also read:- Adani : How the billionaire’s empire lost $100 billion in only a few days
Other companies in the Adani Group also lost 10% of their value. These companies were Adani Total Gas, Adani Green Energy, and Adani Transmission. Adani Ports and SEZ dropped by almost 7%.
Since the Hindenburg report came out, the market value of Adani Group companies has dropped by almost half. Adani Enterprises alone has lost $26 billion in market value since the report came out.
