Indian stock markets have seen a turmoil over the past two trading sessions triggered by the fall in Adani Group Companies’ stocks. Zee Business brings a detailed report on what has happened over the last two trading sessions. The research highlights erosion in market capitalization of Adani Group Companies. The report explains the seriousness of the problem in great detail.
— Market cap of whopping Rs 4 lakh crore has wiped-out over the past two trading sessions.
— The overall market cap of the Adani Group has tanked from Rs 19.40 lakh crore to Rs 15.30 lakh crore.
— In percentage terms the erosion is a whopping 25 per cent.
— Adani Group has 9 listed companies including ACC and Ambuja Cements.
— On an average fall in each of this stocks is 20 per cent. Four companies are in F&O segment.
— Six companies have fallen by over 20 per cent; two companies have just 5 per cent circuit.
— Adani Enterprices, whose FPO is on the block has been the biggest loser from the ordeal. Around Rs 64,000 crore has been lost in market cap of this company.
— Adani Total has lost over Rs 1 lakh crore in m-cap.
5 Big Questions on Adani Group
Q1) Hindenberg has meanwhile challenged the Adani Group to file a case against the company in the US. The question is if the group will go ahead and file the case against the former.
Q2) It will be seen how the investors in Adani Group company stocks get compensated for the loss they have incurred over the past two trading session as a result of this report.
Q3) The second big question is if the market regulator Securities and Exchange Board of India (SEBI) will expedite and expand its investigation against the Group?
Q) Another question is on the performance of the Rs 20,000 crore FPO which is largest in the history of private companies? If the FPO is not subscribed fully, it will be a big question mark on the ability of the group to raise funds?
Q) Will Adani Group bring investors to reduce its debts, like many other companies in the past have done?
Q5) Will Adani Group come forward to clear the air around investments from the offshore companies?
Expert Take – Ambarish Baliga
Expert Ambarish Baliga said that it is unlikely that investors will subscribe share in the FPO issue considering that the FPO price is currently higher than the actual share price. Baliga said that the company will have to revise the price otherwise it will become difficult for the company FPO to get fully subscribed.
Market Cap of Adani Group companies have tanked by over Rs 4 lakh crore to Rs 15.30 lakh crore from Rs 19.40 crore over two sessions.
Shares are largely held by retail investors with very small portion with mutual funds and Foreign Institutional Investors, Baliga said.
He was of the view that considering cureent declines, it is unlikely that the stocks could see any significant fall further. He expects a bounce back from current levels. There is fear among investors if one looks at the past record of Hindenberg.
He was of the view that it will be very difficult to prove charges of stock manipulation. Final answers in this are unlikely to come.
LIC Holding in Adani Group Companies
Out of 9 Adani Group companies, LIC has holdings in 7 companies. Over the past two trading sessions, state-run insurer has taken a hit of Rs 18,300 crore in its investment. The biggest fall has been in Adani Total, where LIC has lost Rs 6,350 crore. It has 6 per cent stake in the company. In Adani Ports, LIC holding is around 9 per cent.
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Under Sebi Lens
The issue of alleged irregularities in Adani Group Companies was raised in parliament in 2019. In response to this, the government had said that SEBI investigations are ongoing against the company. Directorate of Revenue Intelligence (DRI) is also conducting an investigation against the company.
However, Sebi has limitations as it has jurisdiction only over violation of securities law. Other investigating agencies will have to come if one has to determine the role of off-shore investments.
Meanwhile, Reuters has reported that SEBI has taken cognizance of the Hindenberg report.
In its acquisition of ACC and Ambuja Cement from Holcim Group, the Adani Group constituted and SPV. Not just this, there are 17 foreign off-shore entities.
Reactions
Reactions have been pouring in on the development from activist groups or top investors. Billionaire US investor Bill Ackman has lauded the research report by Hindenberg and called it ‘highly credible’.
Adani Group’s Response
The Hindenberg report raised 88 issues and it claimed that Adani Group did not respond to these question and has given a broad based answer. To this Adani Group has said that, Hindenberg’s claims that it has done a thorough investigation spanning 2 years, is untrue. In an investor presentation, the Group said that out of the 88 issues that were raised by Hindenbergy, in at least 21 cases, the information was taken by disclosures made by the company. Out of 9 companies, 8 have auditors which are among the big six ejecting the claims of the Hindenberg report that there were no big auditors in the group companies. It has also rejected allegations of irregularities saying that the group companies have been rated by 10 agencies out of which three are global agencies.
The Adani group also said that six companies fall under the purview of specific regulations. It has also dismissed claims that the company is overleveraged.
About Hindenberg
Hindenberg is a short selling research firm based in the US which publishes its reports based on the findings from forensic audit. Nate Anderson, CFA and CAIA started the company. It has published reports on 30 companies since 2020. The average price correction in stocks after the reports published by them is 15 per cent. Over the six month period the average price correction is 26 per cent. One of its most famous reports is on Nikola where stock prices fell by 94 per cent after report of irregularities surfaced.
An investigation is ongoing against Hindenberg by US Department of Justice on allegations of short selling in connivance with hedge funds. Meanwhile, Hindenberg in its reports makes a disclosure that it does short-selling. They have a great track record.
