The Adani Saga: Wilful Blindness
The Adani saga has drawn a variety of reactions ever since a report by US-based Hindenburg Research set off the rout in Adani stocks from 25 January 2023. Angry 'nationalists' called it an attack on India. This was followed by reams of Adani apologia from mainstream editors and reporters. A few lawsuits have got the Supreme Court exercised. But the core issue about the Adani saga is how the share prices of the group companies rose to such extraordinary levels without any investigation or regulatory intervention. 
The fact that Adani Total Gas Ltd (ATGL) and a few other Adani stocks have remained pinned to the lower circuit with no buyers in sight, day after day, only confirms the central point of the Hindenburg report: All Adani stocks were insanely overvalued the day the report was released. That price rigging is the elephant in the room, which we have refused to see.
I am not sure if most people understand the full implications of how crazily priced Adani shares had become. Since Adani and Ambani are often hyphenated by politicians, let us compare valuations of their stocks for perspective by doing some simple numbers. At its peak, Adani Enterprises, a component of the Nifty 50, was valued at a price-to-earnings (P/E) ratio of 427. If Reliance Industries was valued at a P/E of, say, 400, its market-cap today would be 16 times what it is and Mukesh Ambani would be the world’s first trillionaire, with a net worth of US$1.38trn (trillion)! 
And, of course, if TCS and Infosys were similarly valued, the BSE Sensex would be 8-10 times higher at 480,000 to 600,000 instead of 60,000 or so! On the other hand, if Adani shares were valued as modestly (or correctly) as those of Tata Consultancy Services or Reliance Industries, Gautam Adani’s peak net worth would have been only a few billion dollars, not US$150bn (billion) which briefly made him the world’s third richest man. It is only this insane overvaluation that is unravelling now.
On Tuesday, 24 January 2023, the price of ATGL was Rs3,892, not too far from its all-time high. Yesterday, it was Rs715, a decline of about 82% in a month. To the shock of most participants, day after day, several Adani companies have been locked on the 5% lower circuit. For 22 consecutive trading days, there were no net buyers of the stock, only sellers. On Friday, about 175,000 shares were traded on the National Stock Exchange (NSE), but all at the lower circuit, as buyers were again swamped by a much larger group of anxious and eager sellers. So much so that the open, high, low, and close prices of the stock were the same – the stock was stuck at the lower circuit from the first minute till the last. 
The question that many people are asking is: Who is selling in such desperation? The Adanis hold 74.8% of the stock and another 17.25% is held by 'foreign institutional investors' who are allegedly in the Adani camp, another 6.09% is held by domestic institutional investors, leaving only 1.85% in the hands of the public. So, who is selling?
That has an easy answer, but it is the wrong question to ask. ATGL has 110 crore shares. If the public holds 1.85%, it means 2 crore shares are with the public. On Friday, just 175,000 shares were traded and remained at the lower circuit. If the stock remains stuck at the lower circuit with such meagre selling, it can keep going down for a long time as the panic-stricken public continues to sell. Some FIIs, who have a large holding, could be sellers too. The question, therefore, is not who is selling, but why no significant buyers are scooping up something that has become 82% cheaper in just a month? The dismal answer is, ATGL is still perceived to be grossly overvalued, which is the crux of the Adani controversy. 
According to Hindenburg, ATGL’s fair value (in accordance with industry norms of price/earnings ratio), ought to have been 97.6% lower than what it was when the report was released! That would make ATGL’s fair price about Rs100, but it is still Rs714, even after an 82% decline from the high. Stock valuation can be influenced by a variety of factors, especially of those that are narrowly-owned. So, the Adani group stocks don’t need to keep going down and hit Hindenburg’s estimate of fair value. On the other hand, Adani Power, which Hindenburg had said was only 18% overvalued, has lost almost 50% in value.
There would have been only raised eyebrows and no brouhaha if Adani shares found ready buyers on every dip. But they haven’t. As it stands today, the Adani story has only one angle—how the stocks were rigged up to ridiculous heights, followed by the Hindenburg report on gross overvaluation and then the vertical free fall of Adani stocks. The debate is not about how efficient Adani group’s businesses are, whether he was favoured by the State and how hard it is to become the world’s third-richest person from humble origins. These peans of glory are misdirected and diversionary tactics designed to sidestep the main issue. The question anyone should first ask is how was the price-rigging allowed to get so horribly out of hand. Other discussions, questions and debate about the Adani saga come much later.
(This article first appeared in Business Standard newspaper)
9 months ago
Do we need the Hindenburg report to arrive at high PE of many Adani group shares? Our sleeping giant SEBI wakes up after this report to conduct Enquiry (sic). Our Public Financial Institutions have echoed His (Her) Master’s Voice denying giving any extra favors to Adani group. The tax concessions given to Holcim group needs to be seriously investigated. No other company in India got that kind of favor.
9 months ago
1) Kindly enlighten us on the recent upswing in shares of 8 out of 10 Adani companies
2) Will Adani's road shows in many countries help in improving share value or this is just another baloon ?
9 months ago
Excellent article. I had already read it in Business Standard. I may wonder if my one arm is selling and the other arm is buying, the price would be what I decide. Perhaps this is how the peak was scaled.
9 months ago
Very good article sir
9 months ago
How Adani could hold 75 % shares ? wher did raise money? from Banks loan has been converted to equity...??? funds leaked by over invoicing and invoicing of plant and machinery.. cases are known in power sector wher cost per MW is double what norms are . example a medium size plant of 1000 MW can enrich promoter by 3000 crores
but allegation of insider trading after so many ye
9 months ago
9 months ago
Can there be any short selling done in India also of Adani shares and somebody might have minted money by squaring the position when prices went down?
9 months ago
Just a thought ????????

* Every time Adani stocks sell off , we are flooded with information on how much investors have lost and how much poorer Adani himself has become .

* When Adani stocks rise, no such information.
Meenal Mamdani
Replied to parmarassociate comment 9 months ago
So, you think that people are concerned about the fraud only when they lose but not when they win.
Maybe that is how you look at life.
Others feel that rule of law is important, whether one wins or loses.
That must be a new concept for you.
Replied to Meenal Mamdani comment 9 months ago
This is exactly what people were talking during Harshad Mehta.and Ketan Parekh scams.This article explains you the fundamentals which you try to ignore.Let has hear your theory.
9 months ago
There are three sets of Adani watchers.

One set that wants his empire to collapse. Their Modi hatred is total.

A second set thinks he is India's hope. They think Modi backs him blindly.

The third (biggest) set hates Modi & still bets heavily on Adani just to make a killing.
9 months ago
Prices were rigged up. And now markets have delivered justice. This is how capitalism is works. Why should SEBI sit in judgement about fair value of shares and intervene? If they start doing it AS A PROCESS, they may get it right with one Adani but wrong with 99 other companies. So it is just as well that SEBI did not intervene as no one had complained. Also, sensible investors and institutions (like domestic MFs) mostly stayed away from Adani stocks. Those who lost money have only themselves to blame.
9 months ago
The writer has focused on the fundamental point that this shows our regulators are very weak. That is a serious cause for worry. Hidenburg is a professed short seller and probably researches over-priced shares and profits from this. But if it issues fake reports it could lose heavily. Does the hugely inflated value of Adani shares lead to his being rated as creditworthy and therefore give him access to large borrowings?
9 months ago
Adani ports is not overvalued.
Why is George Soros ,old at 92 yrs in USA,so interested in Adani?
Kamal Garg
Replied to suketu comment 9 months ago
Our EAM commented about George Soros : " Rich, old, opinionated and dangerous" .
9 months ago
All is said and very articulated written, full credit to you.

Here comes pertinent question, market moves on forward earnings (PEG ), per se. SO the Adanis are on high & heavy infrastructure projects execution / growth path, euphoria are created, and there is buying madness ,more so with small retail investors, backed by Earnings / Research reports of leading Broker Houses. Hence most this fuss happens. If the Adani prices are so manipulated how some MFs hold Adani shares across all scripts. AMCs Fund Managers are answerable to the Board of Trustees.

Even TESLA of Elen Mask faced such fate.

What writer grossly missed out to hint at on creditworthiness of notorious Hidenburg Research, which is HEDGE FUND in USA, and its now
under legal scrutiny and debarred entity. So this Research Firm being sort of being Short sellers, this mania and panic only to benefit this firm.

Adani is on strong on cash, it has on the contrary pre-paid loan outstandings, No Retrenchment/ idealising staffing, across all Adani companies are there.

Unfortunately all brown skinned people hypothetical when a white skin reports something " unfavorable" / nostalgic on any Awakening Giant.

I welcome trailing discussion ????????
Meenal Mamdani
Replied to parmarassociate comment 9 months ago
You make frivolous points. No point in discussing the issue when you think the Hindenburg report is wrong.
9 months ago
Kindly explain for the benefit of readers the extent of criminality, if any, committed by Adani Group, in the instant case.
Meenal Mamdani
9 months ago
Very clear and short, so many will read it hopefully.
This points to capture of the regulators, starting with SEBI.
Why has the moral fiber of institutions declined so precipitously?
Or, was this slowly creeping up until it came to this shameful end?

Are the individuals who are in a position to call out the crimes so beholden to the politicians that they stay silent in the face of obvious problems?
Or are they so greedy that they have no shame in going along with whatever the politician in power at that time wants?
It is not as if these individuals are surviving on meager pay. They have been and continue to get fat salaries and perks.
The names of each one of these individuals should be made public so they can be held up to ridicule and blowback from all who have lost their life savings.
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