This is important, so we decided to disrupt our normal schedule to bring you this note.
The Adani group saw its market capitalization crash by Rs 1 lakh crore in one fell swoop today, bringing the dream run of its stocks to an abrupt halt.
With this drop in market capitalization, the gap between India’s richest man Mukesh Ambani and the second richest Gautam Adani became wider, with Adani’s net worth slipping by $7.6 billion.
All six stocks of the group did manage to recover from the day’s lows before markets closed for the day, but the intraday movement was upwards of 40%. Quite a ride.
The stocks hit the lower circuit in the morning trades after The Economic Times reported that three of its foreign public shareholders’ accounts had been frozen as of 31 May by the National Securities Depository Ltd. The reason cited was deficiencies in disclosure of information.
The impact was such that in the morning the stocks shed anywhere between 5% and 25% of their value. However, later in the day, the stocks recovered on the back of the group’s clarification to the effect that the report was “blatantly erroneous”.
Despite this, at the end of Monday’s trade, five of the Adani group stocks—Adani Enterprises, Adani Ports and SEZ, Adani Power, Adani Transmissions and Adani Total Gas—closed in the red. While Adani Ports and SEZ was down 8.49%, the others were down in the range of 4.99% and 6.25%.
The only stock in the green was Adani Green Energy. The intraday stock movement was as high as 44%. All this upheaval happened amidst the noise around price manipulation and that foreign funds had a hand in this.
We have reported at great depth here on a select group of foreign funds which are only invested in the shares of Adani group. Over 95% of the net worth of these funds comes from the group’s companies. Incidentally, all of them are based out of Mauritius, a known tax haven.
According to the NSDL website, the freeze was on three funds—Albula Investment Fund, Cresta Fund and APMS Investment Fund—which hold Rs 43,500 crore worth stock in Adani group companies. Albula Investment Fund, before the market closed, issued a clarification to CNBCTV18 that the fund had not been blocked and was fully operational in and outside India. APMS Investment Fund stated that there was a technical “account level freeze” but the fund remained operational globally.
Having said that, BSE’s surveillance department placed shares of Adani Enterprises and Adani Ports and SEZ on a dynamic circuit filter at 10% to avoid punching error. The four other Adani group company stocks were placed in the trade-2-trade segment, meaning that intraday trading was restricted.
This was an event waiting to happen. The stocks of the group, with a minuscule public float, were always a powder keg. The scepticism has only been vindicated now. Even the public shareholding seems artificial as the bulk of it comes from the same set of seven Mauritius-based funds.
The Securities and Exchange Board of India has received multiple complaints about Adani group companies’ shareholding. The markets regulator has taken cognizance of the complaints and also taken note of the stupendous rise in share prices of Adani companies. Adani Enterprises is up 857% since June 2020. Adani Transmission has surged 625% during the same period. While Adani Green Energy is up 234%.
If we are reading this right, this scepticism will spill over to the group’s other plans as well. For one, the Adani group’s plans to launch new public offers for Adani Wilmar at $1 billion and Adani Airports at $500 million could take a hit. With the doubts around Adani companies’ shareholding pattern getting confirmed, valuations could be impacted. Two, any banker who was willing to fund Adani’s expansion plans would be more cautious going forward, as the market capitalization had taken a hit.
“Much of the Adani group’s growth is fuelled by debt and even future growth is dependent on bank lending. If I was a banker, naturally I would be cautious lest my actions be questioned later,” said a senior analyst, asking not to be named.
We have been saying this for a while now, with domestic institutional investors staying away from the group (with the exception of Adani Ports and SEZ), retail investors need to tread with caution when it comes to investing in Adani group shares.
