Adani’s downfall and and how India will pay the price for it?

Jay Kumar

Jay Kumar

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The Modi Government so far looking to stay silent and not allowing a debate in the parliament yesterday is sign that they will support Adani’s wealth rather then interest of investors of Citizens.

Premium stock price and performance driven excellence resulting in credibility for business’s outlook is at the heart of the premium that a business commands.

Case in point, the Tata group’s annual revenue for fiscal year 2021–22 was reported to be US$128 billion, for which its 29 publicly-listed Tata Group companies had a combined market capitalization of $311 billion as of March 2022.

Similarly, between Reliance Industries and Jio and Reliance Retail, the revenues are 87bn, 11 bn and 21bn USD and for that together, they command a market cap of 193bn, 70bn and 9 billion.

However, the scam that Adani group was, had a total revenue of merely 30 billion dollars, for which they were commanding a market cap of 300bn USD at its height. It had two main sources, the sale of public assets at throw away prices to Adani and stock manipulation schemes of Adani.

Adani has built no brand or business per se, except for Adani ports. Everything else has been bought and funded through debt and for such a company to have that sort of valuation will get the attention of Hindenburgs’ of the world.

The key thing to note here is that the Hindenburg report was only a trigger, not the cause for the collapse. A multibillion-dollar firm does not collapse like that based on one short seller’s report, much less the size of Hindenburg.

Had Hindenburg tried to short Tata group or Reliance, he would have gone bankrupt by now and Hindenburg knows that they are real businesses and thus would never short companies of Reliance, Tata or Mahinda, real business.

adani

The scam has already lost Adani and the share market 105 billion USD or 8.65 lakh crores and we know it can easily be double. That will have its own snowballing implications.

Even though the FPO was fully subscribed they had to cancel because if the current market price of the share was lesser than the FPO price, his investors would have ditched him anyways.

Critically for Adani, his FPO was to offset the existing debt. But with the FPO money going kaput causing major dent to Adani’s remaining credibility, it is quite likely that the firm will undergo a massive rebuilding phase.

They needed the FPO because they weren’t able to service the current debt and given his condition right now, there is nowhere he can turn to raise new money, because for him, the debt will come a very high interest, if it does at all.

adaniFrankly, Adani will now need to sell some of their assets to pay off the debts. And when that happens, the investors will drag the stock through a correction that reflects the business core value. And this the main reason why the stock will continue to correct by 85%.

With the opposition asking question about public money’s exposure to Adani stock, Banks might be forced to sell their pledged promoter holdings. This will seriously hurt Adani’s cash position.

The Modi Government so far looking to stay silent and not allowing a debate in the parliament yesterday is sign that they will support Adani’s wealth rather then interest of investors of Citizens.

Also Read: Hidenburg’s Adani report: RBI, SEBI should probe charges

This means that even if the SEBI opens an investigation, or RBI ask report of bank exposure, these steps are being taken to whitewash the scam and thus give a face-saving reply to the world and push it through the Godi media, which eventually will be supported by the vast support base of the BJP.

Modi gufa

If the government doesn’t come out clean, the FII and big investors are going to lose faith and then any number of things can happen, a sovereign downgrade, credit freeze for other businesses eyeing expansion and a deep long correction.

This issue is then going to snowball into correction of the overall market. Dwindling confidence in the system will means that it will result in investors taking it to the rock bottom value.

A lot of stocks will see their premiums shaved off. If it turns out that the exposure of Indian banks is small then, there will be limited correction but overall, the Indian markets will be tested.

If the banks have a high level of exposure, then it would erode a lot of trust from the Indian market, resulting the junk status and further bottoming out.

Also ReadHindenburg’s Adani Report Made Simple: Fallout of Exposé

This will then snowball into a credit freeze state for the Indian business around the world. This is because a lot of investigations will be opened and while the reports of those investigations will take 1 or more years, till then the FIIs would just wait and watch. We are looking at a 1-2 year correction owing to a freeze in the credit cycle.

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Jay Kumar

Jay Kumar

Author is an MBA with 17 years in consumer insights. A keen observer of the economy and the stock market, has worked in India, Indonesia, China and Vietnam.

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