The Hit That Bit The Adani Stocks, And Investors’ Wealth To Plunge Rs 10.42 lakh crore; Has The Adani Bubble Burst Triggered A Long Bear Trudge In Indian Markets, And Will The Adani Saga Bring Down The PSU Banks, LIC And Institutions That Have Lent Money To Adani?

The year 2022 was a pathetic year for global stock markets; however, 2023 started on a promising note, at least for India, i.e. until the Hindenburg Research report made its shocking revelations on Adani Group and Geroge Soros too jumped into the field and gave a glimpse of his forecast for Indian stock markets. However, from what has been transpiring in the Indian Stock Markets, and primarily triggered by the chaotic downward spiral or 'corrections' in hyped Adani Stocks, the exposed holes in Adani Group have led the Indian equity markets to register seven consecutive sessions of decline, eroding investors' wealth by a whopping Rs 10.42 lakh crore. How is Adani's downfall a major problem for PSU banks, LIC, and others?

Investors across the globe sighed in relief as FY22 bid its farewell and FY23 made much promising start, the US inflation seemed to have reigned in, and the Russia and Ukraine war also lost its impact on the global markets.

Hence, stock market analysts opined that 2023 would be a good year for the global markets, and the same was not far off the mark for the Indian stock market analysts either until the Hindenburg research report came out with its damning allegations against India’s rising star – the Adani Group.

This research report changed the whole game for Indian stock markets. While the research report only spoke of one Indian company, detailing the company’s inner workings, which we are all more or less aware of now, in particular, we will talk about the Adani stocks, which according to the Hindenburg report, were overvalued by almost 85%.

The Hit That Bit The Adani Stocks

As soon as the Hindenburg report came out, the fallout of the same was seen in almost all areas, be it political, the Adani Group itself, all entities that had exposure to Adani stocks, investors, and the Indian stock markets.

The impact was so severe that the Adani stocks fell on an average of more than 70 – 72 per cent, which is enormous and get this, this is what the Hindenburg report had also hinted at or close to – that the Adani stocks are overvalued by 85% per cent. 

And this is not all; some Adani stocks, like Adani Total Gas, as of February 23, have been on a lower circuit for nineteen straight days!

This scenario has been seen in stocks for companies such as Geetanjali Gems when a scam was uncovered related to a specific company. Hence in usual market conditions, a stock of a particular company to trade on a lower circuit is highly unusual. 

George Soros, The Vindictive Short Seller

George Soros is the hedge fund manager, and to his credit, his hedge fund is the best-performing hedge fund in the world, so how does he do it?

Soros has had a history of shorting currencies of several countries, including the UK’s Sterling Pound in 1991 and Thailand’s Baht in 1997. Needless to say, he made loads of money while the entire ASEAN region suffered from his action.

So is India next on his list, and has the irresponsible debt-fuelled expansion by Adani Group become an easy target that Geroge Soros was searching for?

Hence, in all probability, Geroge Soros is a shrewd businessman who is in the habit of taking on governments of different countries and stemming from this in all likelihood is Soros formulated – General Theory of Reflexivity for capital markets, which he says gives a clear picture of asset bubbles (Adani Stock Overvaluation) and fundamental/market value of securities, as well as value discrepancies used for shorting and swapping stocks, phew!!!

What Is The Problem Area Highlighted By Hindenburg Report

According to Hindenburg, they have highlighted that the money is actually flowing out of India to Adani’s Brother’s account (offshore tax heavens) and then being rerouted to India through the FIA account.  

Adani has a portfolio of seven companies – Adani Enterprises, Adani Green Energy, Adani Ports & SEZ, Adani Power, Adani Total Gas, Adani Transmission, and Adani Wilmer.

Of these, only two are traded in F&O (Future & Options) remaining five stocks are traded in cash markets, which cannot be shorted. Only Adani Enterprise and Adani Port can be shorted, but shorting Adani Port will make little sense; however, shorting Adani Enterprise is possible. Therefore, so much volatility is likely seen in the Adani Enterprise stock. 

Where And When Will It End

Usually, when a short is made, the short seller is likely to continue to short-sell until some margin calls are made or triggered.

For those who may not know what margin calls are, let us say that Adani Group may have pledged some of the shares of Adani Group companies to take some loan (this is by far true so far as what is seen in Adani Group), and this may not be limited to only the Adani Group but also the family members.

For example, Gautam Adani’s brother Vinod Adani let’s say, wants to open a company in some part of the world. That company can take a loan from any bank, and the guarantor of the same could be two funds that own only Adani Group Stocks; this is also seen in Adani Group!

And what happens if the Adani Group shares keep coming down, then the guarantor’s NAV (Net Asset Value) will keep decreasing, and hence the ‘guarantor’ will have to pump in more money.

And this is not just limited to the Adani Group of companies in India but also companies controlled and run by family members.

PSU Banks Under Threat?

The Adani fiasco has another profound ramification for institutions that have lent to Adani, especially the PSU banks. It has been seen lately that they are also losing in the market.

In the last few days, the PSU banks index has fallen almost 10 per cent, and this is because many PSU banks like BoB (Bank of Baroda) and lenders who are holding the Adani shares as security will have to ask Adani to pledge more and more shares or to top up the money (the Australian mine which is now under consideration) or otherwise these institutions will have to sell those shares or else it will become NPA (Non-Performing Asset).

What Is The Real Problem 

The Adani Group shares have already tumbled almost 70%, and that too without paying back and adding to this LIC, as per media reports, is staring at a loss in Rs 30,000 crore bet, which means that LIC’s share value would have also gone down by 70% which is the loss that LIC is currently staring at.  

Therefore, the Adani fiasco is a major hurdle that all institutions that have lent money to Adni have, in turn, been put under severe strain.

Conclusion:  Any further fall in Adani stocks and if Adani Group cannot clear its loans with institutions that have lent money will have enormous ramifications for these institutions, investors and the country’s economy. 

Hence, in all probability, the underhand activities of the Adani Group have the potential to take everything and everyone associated with the Adani Group to fall as far down as the group itself. 


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