The time just hasn’t been right for the Adani Group companies. But how did they reach here after having the best year?
Once the Adani Group was on top of the hill and Gautam Adani was Asia’s second-richest man after Mukesh Ambani. But now, the group companies’ stocks are falling while the capital markets regulator is investigating the firms.
The Golden Year
From April 2020 to April 2021 (for around 12 months), the Adani Group companies witnessed a massive growth. Since the end of March 2020, the combined market capitalisation of six Adani Group companies jumped around 455% against an 80% rally in the combined market capitalisation of India’s top 1,000 listed firms. During April this year, the Adani group companies had a combined market capitalisation of about ₹7.3 trillion, up from ₹1.3 trillion at the end of March 2020. This is the third-biggest market capitalisation among family-owned businesses in India, after Tatas and Reliance Industries.
The jump in capitalisation came after all the six Adani group companies outperformed the broader market during those 12 months, making Adani the most successful business group in the country, at least in terms of stock market performance. During the same period (March 2020 to March 2021), the group’s six listed firms added a combined $79 billion to their market value, capping the best 12 months in their history.
Source: Yahoo Finance
This graph shows the performance of the six listed Adani firms from the period of March 1, 2020 to March 30, 2021.
This rally in shares also helped Gautam Adani, as his wealth rose from $16.2 billion to a massive $50 billion in 2021. The growth of nearly $34 billion was accrued within a year. When we compare that growth to the growth of Mukesh Ambani’s wealth in the same time, Ambani managed to garner just $8.1 billion. The growth in Adani’s wealth surged past even Bezos and Musk’s growth. This made the group owners and promoters — the Gautam Adani family, to emerged as the second-wealthiest business in India.
Growth In Business
When we look at achievements on the businesses front, Adani has gained control of seven airports and almost a quarter of India’s air traffic in less than two years. He also disclosed plans to augment his renewable energy capacity almost eightfold by 2025. Adani also won a contract to co-develop a port terminal in SriLanka in March. Also, in February, Adani Enterprises signed an agreement with EdgeConneX to develop and operate data centers across India.
The group also attracted foreign capital, with Warburg investing $110 million in Adani Ports and Special Economic Zone in March. Meanwhile, France’s Total increased its investment in Adani Green to $2.5 billion. So, how did Adani manage to become so big in a span of around two years?
Tim Buckley, director of energy finance for Australia and South Asia at the Institute for Energy Economics and Financial Analysis said, as quoted by Bloomberg Wealth, “Adani is politically savvy and invests in mostly sensible, long-dated infrastructure projects.” Tim added, So long as India sustains strong growth, the group is likely to prosper under his leadership and witness a surge in global investor interest.”
Trouble In Paradise
All the rally came to a stop in June after a report by The Economic Times said that NSDL froze the accounts of three Mauritius-based funds due to insufficient information on the owners. Despite the company calling the report “blatantly erroneous”, the stocks of the listed firms continued to plunge. On June 14, Adani Group companies had shed over $6 billion and the crash in the stocks led to over $7.6 billion being erased from Gautam Adani’s net worth.
Adding to the woes, the companies’ shares plunged again after Pankaj Chaudhary, the junior Finance Minister said, besides Sebi, Directorate of Revenue Intelligence (DRI) is also “investigating certain entities” belonging to the Adani Group for compliance to another set of local laws. The DRI investigation relates to a show-cause notice issued to Adani Power five years back. This news, which came a couple of days, has led to the decline in the shares again.
The above graph shows the performance of the six listed companies in the past one month. We can see how the shares have fallen from their highs.
A Touch Of Modi
It is a widely known fact that governments play a part in helping companies flourish in a nation as businesses bring employment, foreign investments and also leads to the growth of the country. But there have been criticism from the opposition party that the reason behind the growth of Adani and his businesses is because of his closeness with Prime Minister Narendra Modi. Earlier in March 2021, Rahul Gandhi tweeted about this, but these allegations have been denied by Adani.
One such incident that we should note here is Adani winning the bid for the privatisation of six airports. The important thing here is that Gautam Adani has no history of running airports, but he won the bid for all the six airports. This led to an outrag and Kerala’s state finance minister Thomas Isaac called it as an “act of brazen cronyism.” The Kerala government appealed to the Supreme Court against the Airport Authority of India’s decision to lease out to Thiruvananthapuram International Airport to Adani Enterprises. The case is still being heard there.
Also, in 2015, Credit Suisse said in a report that the Adani Group was one of 10 conglomerates under “severe stress” that accounted for 12 per cent of banking sector loans. But despite all the debt, the Group continued raising funds. Hemindra Hazari, a Mumbai-based banking analyst told Financial Times, “Groups that are perceived as politically connected can still tap the banks for loans,” and added, “If you are any other highly stressed group, then it is difficult for you.”
Zooming Out
Despite everything that has been told, we cannot forget the fact that the story of Gautam Adani is an inspirational one. He began as a commodities trader in the late 1980s, but now he is richer than Jack Ma, according to Bloomberg Billionaires Index. He has his hands dipped in all the pies that made and continues to make loads of money, such as coal, infrastructure and green energy.
But critics question whether it is right for the government to make certain decisions that makes Adani rich at the expense of millions of middle class people. However, the current investigation by Sebi and DRI makes us wonder whether the Group’s massive growth will come to a standstill now because of these probes? And that’s a question that can only be answered by time.
