The Adani crisis doesn’t appear to be slowing down any time soon. Seven out of ten Adani Group equities are losing money. Regulators, legislators, and courts, the Adani-Hindenburg issue never fails to make headlines and dominate conversations in financial markets and business settings. Over a month following the Hindenburg iceberg struck the Adani Group right before its now-canceled follow-on public offer, it is crucial to take a step back and comprehend the most important lessons from the Adani scandal. What actually does the Adani narrative mean for India’s markets, investors, regulators, and yes, the business sector?
Everything you need to know about Hindenburg and Adani!
All investors were in wonder as the group’s combined market value increased by more than 100%. Investors and analysts claimed that the run-up was justifiable since the Adani Group was unstoppable and had staked a significant amount of money on the India infrastructure story. Stock prices for the company had skyrocketed, but the increase persisted and catapulted Gautam Adani to the lofty position of the third richest person in the world.
Between 2002–15 and 2016–21, the market value of the company’s flagship, Adani Enterprises, stayed consistent with that of its competitors, but after 2021, the same measures will be multiples of those of its competitors. Without a better term, 2022 was unquestionably the group’s “breakout” year. There is another aspect to this, which Aswath Damodaran, a worldwide values expert, has often brought up in his remarks on the Adani controversy: the group’s concern with maintaining a very high level of control.
With the significant promoter holdings, this is essentially what knowledgeable market professionals believe led to values that are simply cosmetic. Investment bankers and Adani observers agree in private that the valuations the group saw hardly seem to be the outcome of any real market discovery. Little holdings by retail investors can make noise, but their positions do not help with price discovery. Moreover, low free float-driven equities have the capacity to bring down entire companies, as they did in the wake of the Hindenburg disaster.
The governance issue has been brought to light by the Adani controversy. Even while there are a lot of reliable assets that generate regular cash flows, the major issue isn’t so much the amount of debt as it is the absence of proper transparency that might soothe investors’ anxieties.
Despite this, there are numerous lessons that investors, companies, and even regulators may learn from the Adani predicament. Investors must do their homework before making an investment in the equity markets at a time when millions of new investors have done so.
According to J.N. Gupta, a former executive director of the Securities & Exchange Board of India and current CEO of the proxy advisory firm Stakeholders Empowerment Services, investors should never base their choices on fads or hype but rather should always do extensive research before making any investments.
Gupta witnessed numerous market booms and busts during his tenure at the regulatory body. He emphasizes that equity carries risk and that those who are patient profit from the activities of the impatient.