A tough week for Adani group

It all began with a rather innocuous news report about SEBI freezing demat accounts of 3 major FPIs for reasons of non-compliance. It eventually emerged that these 3 funds together held close to Rs.43,500 crore in the Adani stocks and could create a big challenge for them. In response, all the six listed entities of the Adani group cracked sharply. In the next four days, the Adani group lost Rs.160,000 in market cap or $22 billion leading to a sense of panic in markets. Is it really so worrying at a larger level? 

Put the correction in perspective

While the Adani group and NSDL came out and denied this report categorically, the sentimental damage was done. In spite of assurances to the contrary, the Adani group stocks failed to bounce. But, this correction must be put in perspective. In the last 1 year, Adani group saw market cap accretion of more than $100 billion. In that backdrop, some amount of speculative froth going out of these stocks is par for the course. Also, the stock market tends to stretch the limits of its imagination on the down side as well as on the up side. Hence, an overreaction was hardly surprising. 

Business story is still intact

Let us leave out market cap for the time being. If you look at business growth, the Adani group has been one of the biggest success stories in recent times. Starting of as a trading company 42 years ago, the company today spans ports, green energy, power, gas, SEZ, agri and defence; with leadership status in each of these segments. To be fair, the group has consistently proved itself in terms of technology application, skills in execution and re-imagining the next big idea. In a business milieu, where the entrepreneurs are in search of the next big PE investor, long haul players like the Adani group are here to stay.  

Quick lessons for Adani group

As the Adani group emerges among the top-5 business groups in India, there is some serious rethinking called for. For starters, Adani must look at the quality of investors who are invested in its stocks. As we have seen in the past, an array of speculative investors can do a lot of damage in the long run. Secondly, it is time for better communication from the company. For example, investors and analysts are worried about the big mountain of debt, its political proximity and its ability to match profit growth with revenue growth. For the Adani group, this disruption may have come at the right time. The onus is on the group to take it up and put its house in order. That will be the next major step!