The Adani Group has been called out before for its less than pristine corporate structure and disclosures. However, the latest missive from Hindenburg Research seems to have hit a nerve.
The stock of their flagship co, Adani Enterprises, often mentioned with an eyeroll, has been on a tear ever since the BJP came to power.
It is as close to a “State Champion” you can get without explicitly saying so in India.
Every once in a while, questions crop up about the sustainability of their debt, the eagerness of state-owned banks and financial institutions to fund their projects, their convoluted corporate structure, the way in which they effortlessly glide through regulatory investigations and the winning… so much winning… in ports, airports, roads, power transmission, power generation, power distribution, real-estate, food retailing, oh my!
Every once in a while, the stock tanks as investors fear the hammer coming down on the group.
But it has always recovered.
In the midst of all the chaos, marquee investors committed ~Rs. 60 billion to their FPO.
The stock closed on Friday at Rs. 2761, so these investors are already down 16% out of the gates. SEBI is like Hang On! and MSCI is like What’s Up?! Is this sufficient cause to renege and renegotiate?
Maybe.
Retail investors are not exactly lining up to buy the FPO at the high floor price that it currently has. If the stock rout continues, they’ll have to reset the floor.
But!
The problem with taking on a State Champion is that failure for the State is not an option. If this zeppelin goes down in flames, then the job of securing a third term for Mr. Modi gets that much harder.
This is why my gut tells me that we are likely to see the mother-of-all short-squeezes next week. We are in a zero-or-hero situation and zero is off the table. The stock is already down 35% this year. A lot of retail punters have made a lot of money just buying the dip levered long the group since the pandemic lows to a point where it’s almost a Pavlovian response.
As much as I appreciate Hindenburg’s valiant attempt at shining a light on some really dodgy business practices, I think it would be prudent for them to not overstay their welcome. I want them to survive this and live on to write more short reports.
To be clear: this is NOT a recommendation to buy or sell anything.
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Links
US earnings have been a turkey.
Of Intel:
Of Microsoft:
Perhaps the misses were not as bad as feared?
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Venture capital outcomes are random.
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This is a good thing. Housing for all.
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Being in debt makes you less risk-taking and less mobile. An employee who lives pay-check to pay-check is pliant.
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Paging Greta!
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The world is getting old. Indians are young, at scale.
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When you get old enough to find all new tech sus.