Adani Group Under NSE Scrutiny, Removed from Key Dow Index

Stocks in the Adani Group have been massive wealth creators in recent years. This can be gauged from the fact that some of the stocks in the group have given returns close to 5000% over the last five years!

Adani Group: Share Price Movement

(as on 2nd Feb, 2023)

This bumper rise in the stock prices of the group companies propelled Gautam Adani to become the third richest person on the planet. Case in point: The billionaire added a whopping $121 billion to his wealth in 2022, more than the likes of Tesla CEO Elon Musk and Facebook owner Mark Zuckerberg.

However, in the last two days, the group has witnessed a huge fall in its market cap. In this period, the group has seen its market cap eroded by a jaw-dropping 4.17 lakh crores.

But why? What has led to this massive correction in the stocks of the Adani Group? Why have the group’s stocks fallen so massively in the last two days? Has there been any material change? Let’s analyze

Adani Group Stocks: Why Did it Rise Last Year

2022 was a massive year for the Adani Group stocks. The growth in the stocks of the Adani Group subsidiaries was fuelled by acquisitions and marked by active forays into the media, green energy, and telecom sectors. Moreover, the government’s massive capex push and schemes like the Production-Linked Incentive scheme propelled the Adani Group stocks to new heights.

Below is the financial position of the Adani Group companies as per FY22:

Adani Group Share Prices: Why Is it Plunging?

Hindenburg Research, a US based investment research firm with a focus on short-selling. Short-selling is a market strategy where one gains on stock prices falling.

Now, this research firm has come out with a damning report against the Adani Group. In this report, the firm has accused the Gautam Adani led group of “brazen stock manipulation and accounting fraud scheme over the course of decades.” The effect of the report has been such that the business tycoon’s position in the world’s rich list has slipped from third to seventh.

Meanwhile, this has also dented the sentiments around the Rs 20,000 crores Follow-on-Public Offer (FPO) of Adani Enterprises, the flagship company of the group. Notably, the FPO was subscribed just 1% on its opening day.

Adani Cancels Rs 20,000 Crores FPO, Will Return Money to Investors

Amid the continuous selling in its group shares, Adani Chairman Gautam Adani announced that he is cancelling the Rs 20,000 crore FPO of Adani Enterprises. Adani reiterated that the fundamentals of the group remains strong with a solid balance sheet and robust cash-generating abilities. 

Notably, the conglomerate has promised to refund the money received from the FPO to investors.

Adani Enterprises Under NSE Surveillance

The woes for the Adani Group continue to persist. Now, shares of Adani Enterprises has been placed under National Stock Exchange's Additional Surveillance Measure (ASM) framework.

When a stock comes under the ASM list, it gets monitored due to factors like price fluctuation, volatility, volume variance, etc.

Moreover, Adani Enterprises have also been removed from the Dow Jones Sustainability Indices following stock manipulation and accounting fraud allegations.   

But what concerns did the Hindenburg report raise about the Adani Group and the Adani Group subsidiaries that led to the massive fall in the Adani Group share prices? Let’s find out.

Concerns from Hindenburg Report:

• Adani Group Massive debt:  5 out of 7 listed companies have substantially high debt levels. Notably, a report from 2022 by CreditSights (a Fitch Group company), stated that the Adani Group companies are heavily over leveraged as the company is using debt to invest aggressively across existing and new businesses. Notably, a report by CLSA cited that the top five companies of the Adani Group have a total consolidated debt of Rs 2.1 lakh crores. 
  
   
• Adani Group Valuation: The firm believes that the group’s seven listed companies have a downside potential of 85% on a fundamental basis due to sky high valuations.
   
• Adani Group Ongoing fraud investigation: Four government fraud investigations with an estimated $17 billion cost - have allegations ranging from money laundering, theft of taxpayer funds, and corruption.
   
• Adani Group Promoter ownership concerns: High promoter ownership levels of listed Adani group companies leading to stock price manipulation. In fact, some of the subsidiaries have promoter ownership of more than 25% which violates Indian stock market regulations. This has led to delisting concerns for some of these companies.
   
• Adani Group Auditor’s & management change: Hindenburg has also raised doubts about the independent auditor of Adani Enterprises along with its frequent changing of Chief Financial Officers.

Conclusion
The concerns raised by the Hindenburg report are substantial. Although the Adani Group has dismissed the claims, recovering from this setback will be a massive task for the conglomerate. Will the beleaguered group be able to turnaround its fortunes? Let’s see how the future pans out.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.