Factors Behind Stock Price Change In ADANI GROUP FIRMS

From February 28 to March 17, 2023, the price of Adani stock increased significantly. Since then, it has remained range-bound. Before that, with the release of the Hindenburg Report on January 24, 2023, they sank like a stone for a month. Analysts and investors are confused due to these events that are developing quickly. Several projects have had to be canceled since the fall, slowing the Adani group’s previous explosive rise.

Hindenburg has admitted to short-selling Adani stock overseas. The main finding of their Report is that various manipulations caused the stock prices of the Adani group to increase by over 85%. In other words, the actual value was one-seventh of the peak market valuation. Short sellers have the chance to profit from such overvaluation. The Report caused a general loss of confidence and a collapse in the value of the Adani stocks. The stocks of the Adani group decreased on average by nearly 65%, and several of them did so by almost 85%. What has changed for the Adani stocks after February 27 and again after March 17? Is this a trend reversal or just a fad?

In the last few months, no discernible change has occurred in the group’s companies’ profitability or production. It owns several profitable assets, including infrastructure, ports, mining, and airports. The issue is that the returns have been unacceptably low, 1% at a P/E ratio 100, because the group shares have been overvalued. As a result, changes in the fundamental factors are not the basis for changes in valuations that are up or down.

Factors Underlying Valuation

The high valuations resulted from the following factors: 

• buying assets for less money, which ensures higher profitability and a quick increase in the share price of the group company; 
• using the overpriced assets as collateral for large loans to buy more assets; and
• using one’s own money and the money of others to invest in the group companies.

Factors Underlying Valuation

The sudden increase in the Adani group firms’ stocks since February 28th suggests that the group gained liquidity through their mobilization and other people’s assurances that the price wouldn’t drop. GQG has invested Rs. 15,000 crore, for instance. Could an agreement or money be handed to them by a favorable party to invest in this situation as well? Naturally, they are obtaining the assets for a lot less than they would have on January 24.

Despite the steep decline, ADEL’s P/E ratio was 112, and its dividend yield was 0.049% as of March 8. Additionally, Adani Group’s profit-to-market capitalization ratio (after it halved) was 2%, significantly lower than Bajaj Group’s and Jindal Group’s ratios of 3.4% and 10.8%, respectively. Given the unattractiveness of Adani shares, is it possible that some significant organizations that aided the empire’s expansion are buying a piece of it at a reduced price? High finance is shadowy and shrouded in secrecy. Rarely does the whole story come out.

Uncertainty has been created in both the international and Indian markets by the global banking crisis brought on by the collapse of SVB on March 10. This has affected the increase in the Adani group stocks.