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3 ways the Adani news affects you! 😲
Even if you've not invested in Adani stocks
Okay, there’s this Hindenburg report that claims that the Adani group is the “largest con in corporate history”! Bold claim, I must say!
So today, we’ll see how (if this analysis is true), our investments could be impacted.
But first, the story..
What exactly is this report and what does it claim?
So Hindenburg Research is a US-based company that specializes in forensic financial research. They claim to have spent two years analyzing companies of Adani Group and are saying that there are a lot of things going wrong with them.
Adani group has been manipulating stock prices, and has been investigated by the government for fraud, 4 times in the past
The auditor of Adani Enterprises is a small 11-member CA firm. And the partners who signed off on the financials are 28 years old right now. In fact, they were just 23-24 when they started working with Adani for audit.
Here’s the thing - one would assume that a billion dollar enterprise like Adani would use a company like PWC, KPMG, Deloitte etc for Audit. But they’re using a micro-sized firm whose partners have just 5-6 years of experience.
Difficult to digest, isn’t it?
The report says that there’s a fund house in Mauritius which has 99% of its investments only in Adani companies. This, according to Hindenburg, indicates that Gautam Adani is creating companies only to buy its stocks and manipulate prices. Also, according to the report, this fund seems to have worked with Dharmesh Doshi, who was involved in the Ketan Parekh scam in the past.
Too much to digest, isn’t it?
In fact, their report is more than a hundred pages long with detailed explanations for many such claims.
I won’t get into the details, but if you want to read the report, I’m linking it towards the end of this post.
Now, what happens if this fraud is proven?
So I’m not saying that the allegations are true. Nor am I saying they’re false. That’s for the authorities to decide.
But SEBI (the regulator and watchdog for such kind of activity) is most probably going to start an investigation. And IF this fraud is proven, here’s how you and I could be impacted:
Adani Enterprises and Adani Ports form a part of Nifty 50 index. Now, these two stocks have already dropped, but if the investigation reveals fraud, they’ll be hit really hard. Their price would fall, which would in turn mean the Nifty index would fall. So even if you have a Nifty index fund (and don’t have Adani stocks directly), your portfolio may come down, thanks to these two rockstars (sarcasm intended)
Next, let’s see how much debt the Adani Group has taken from banks. As per CNBC and Business Today, Adani Group has a total debt of 2.1 lakh crores, out of which about 81,000 crores has been lent by Indian banks. This means that 40% of Adani’s total debt comes from Indian banks, of which only 10% is coming from private sector banks. The remaining 30% is from public sector banks.
While SBI has said that all the debt given to Adani is secured by collateral, it would be an understatement to say that banking stocks will not be affected if things go south.
And most of the larger banking stocks form a part of the Nifty 50. This means that if a fraud is established, the effect could be seen on banking stocks as well as the larger Nifty index.
Amidst all of this, there’s going to be a LOT of unpredictability. This report (even though unproven yet) made Adani stocks fall by as much as 20%. Now irrespective of what happens, there’s a high chance that the market will be volatile. And investors hate volatility. So if this continues for a long time, we may see large foreign investors withdraw money from Indian stock markets, further dropping prices.
So what should you do?
Okay firstly, relax. It’s not doomsday.
We don’t know whether this is going to happen or not. And my personal opinion is, even if the fraud is proven, Adani is too big a group to be allowed to fail.
In the 2008 recession, the AIG group was facing huge financial issues. But the US government came to its rescue and bailed them out. My guess is, worst case scenario, something similar will happen with Adani in India too (if push comes to shove, i.e)
But again, huge disclaimer - this is just my personal opinion.
As investors, I think we shouldn’t read too much into the situation, and should stay invested for the long term. Even if the larger market falls, Adani forms a “part” of it. It won’t be doomsday.
At least we hope it won’t!
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If you want to check the Hindenburg report, you can check it out HERE
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