On the same day that Finance Minister Nirmala Sitharaman presented Budget 2023 in Parliament, Adani Enterprises announced that it would not be going through with the Rs 20,000-crore Follow-on Public Offer (FPO). The embattled company also clarified that it would refund the money collected from investors.
On the one hand, the Budget brought cheer to the stock market – with many analysts calling it 'market-friendly'. But on the other, the abrupt pull-out by the Adani Group led to the market taking a beating.
How will these simultaneous factors play out in the coming weeks? The Quint spoke to market experts to find out.
How Will Adani Scrapping FPO & Budget 2023 Affect Markets? Experts Take Stock
1. 'Forward-Looking Budget, Impact on Markets Will Be Good'
"Budget 2023 is a work in progress for a government that has long-term economic growth as its deep focus. The impact on the markets will be good once the various other wrinkles have been digested and ironed out," personal finance expert and author of Let's Talk Money, Monika Halan, told The Quint.
"The Indian stock markets are sensing the growth that lies ahead in the next decade and should stay with the long-term Compound Annual Growth Rate (CAGR) of between 12 percent and 14 percent," she added.
Many experts reckon that the Budget "sent a strong message to the outside world that India is putting big money into lifting the economy."
"From infrastructure to agriculture and finance, the government is giving shape to various initiatives. At the same time, it's showing the path to the economy, at least for a longer period of growth," Deven R Choksey of the KR Choksey Group said.
But what about the timing of Adani Enterprises' decision to scrap the FPO – a move that comes on the back of the Hindenburg report, which flagged several causes for concern in the group's operations?
Expand2. 'Nothing New Said in the Hindenburg Report'
Speaking to CNBC, JN Gupta, the former Executive Director of the Securities and Exchange Board of India, said, "At present, the Hindenburg report is a war of words between Adani and Hindenburg. All of these have been in the public eye. The Hindenburg report has only brought the facts relevant to the court forward."
"People who don't understand the markets have been saying 'India will suffer, the markets will suffer, Adani will suffer.' Everything that has been put in the Hindenburg report has already been disclosed. However, these are brick-and-mortar industries. You can't expect the entire industry to close down because Adani went down."
JN Gupta, Former Executive Director, Securities and Exchange Board of IndiaThe shares of Adani Group of companies continued to plunge on Wednesday, 2 February. However, industry sources told The Quint that the market would recover – and course correction would take place over time.
Drawing an analogy to LIC's public issue of shares, they added, "You have to take care of investor interest, otherwise they won't come back. Look at LIC. They don't get much interest from retail investors. Because they can't get returns from the company."
In May 2022, following a drop in LIC's public issue share prices, investors lost close to Rs 68,100 crore.
Expand3. 'Had To Be Done This Way'
Deven Choksey said, "As far as Adani FPO is concerned, I think it HAD to be carried out this way because you had already collected money, but at the same time, this kind of falling of price, the institution itself would have been panicked and under the highest amount of strain. This fall in the price would result in mark-to-market negatives for them in the books."
Sidenote: Mark-to-market losses are losses that are created through an accounting entry rather than an actual sale of a share or security.
"I think Adani very sensibly chose to withdraw the FPO and return the money to investors. It's the only way to keep your credibility and goodwill intact. Plus, they can enter the FPO market in the future. As such, the business of the companies doesn't depend on FPOs, but an FPO would have helped certainly," he added.
"Currently, the situation is that sentiments are quite negative. There's a lot of damage in the stock price, the immediate answer is that confidence has to come back. And confidence WILL come back once the prices start to recover, because the fundamentals of the company are very strong."
Expand4. So, When Will The Markets Be Back to Business-As-Usual?
Backing this up, market expert SP Tulsian said, "Adani Enterprises' FPO having been withdrawn has raised the credibility of the promoters, who could have gone with the FPO having been fully subscribed. But that would have been cheating a new set of investors. Also, good arbitrage was seen in share price, which prompted holders of existing stock to new shares. On the face of it, they may lose around Rs 20,000 crore, but allowing the FPO to go through may have further eroded anywhere from Rs 80,000 crore to Rs 90,000 crore."
SP Tulsian said it would likely be fine in a month. "In about one month or so, normalcy will return to stock prices. Fresh volatility in the market is unlikely now because of Adani Group's stocks – because the market will take cues from the budget," he added.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)
Expand
'Forward-Looking Budget, Impact on Markets Will Be Good'
"Budget 2023 is a work in progress for a government that has long-term economic growth as its deep focus. The impact on the markets will be good once the various other wrinkles have been digested and ironed out," personal finance expert and author of Let's Talk Money, Monika Halan, told The Quint.
"The Indian stock markets are sensing the growth that lies ahead in the next decade and should stay with the long-term Compound Annual Growth Rate (CAGR) of between 12 percent and 14 percent," she added.
Many experts reckon that the Budget "sent a strong message to the outside world that India is putting big money into lifting the economy."
"From infrastructure to agriculture and finance, the government is giving shape to various initiatives. At the same time, it's showing the path to the economy, at least for a longer period of growth," Deven R Choksey of the KR Choksey Group said.
But what about the timing of Adani Enterprises' decision to scrap the FPO – a move that comes on the back of the Hindenburg report, which flagged several causes for concern in the group's operations?
'Nothing New Said in the Hindenburg Report'
Speaking to CNBC, JN Gupta, the former Executive Director of the Securities and Exchange Board of India, said, "At present, the Hindenburg report is a war of words between Adani and Hindenburg. All of these have been in the public eye. The Hindenburg report has only brought the facts relevant to the court forward."
"People who don't understand the markets have been saying 'India will suffer, the markets will suffer, Adani will suffer.' Everything that has been put in the Hindenburg report has already been disclosed. However, these are brick-and-mortar industries. You can't expect the entire industry to close down because Adani went down."JN Gupta, Former Executive Director, Securities and Exchange Board of India
The shares of Adani Group of companies continued to plunge on Wednesday, 2 February. However, industry sources told The Quint that the market would recover – and course correction would take place over time.
Drawing an analogy to LIC's public issue of shares, they added, "You have to take care of investor interest, otherwise they won't come back. Look at LIC. They don't get much interest from retail investors. Because they can't get returns from the company."
In May 2022, following a drop in LIC's public issue share prices, investors lost close to Rs 68,100 crore.
'Had To Be Done This Way'
Deven Choksey said, "As far as Adani FPO is concerned, I think it HAD to be carried out this way because you had already collected money, but at the same time, this kind of falling of price, the institution itself would have been panicked and under the highest amount of strain. This fall in the price would result in mark-to-market negatives for them in the books."
Sidenote: Mark-to-market losses are losses that are created through an accounting entry rather than an actual sale of a share or security.
"I think Adani very sensibly chose to withdraw the FPO and return the money to investors. It's the only way to keep your credibility and goodwill intact. Plus, they can enter the FPO market in the future. As such, the business of the companies doesn't depend on FPOs, but an FPO would have helped certainly," he added.
"Currently, the situation is that sentiments are quite negative. There's a lot of damage in the stock price, the immediate answer is that confidence has to come back. And confidence WILL come back once the prices start to recover, because the fundamentals of the company are very strong."
Backing this up, market expert SP Tulsian said, "Adani Enterprises' FPO having been withdrawn has raised the credibility of the promoters, who could have gone with the FPO having been fully subscribed. But that would have been cheating a new set of investors. Also, good arbitrage was seen in share price, which prompted holders of existing stock to new shares. On the face of it, they may lose around Rs 20,000 crore, but allowing the FPO to go through may have further eroded anywhere from Rs 80,000 crore to Rs 90,000 crore."
So, When Will The Markets Be Back to Business-As-Usual?
SP Tulsian said it would likely be fine in a month. "In about one month or so, normalcy will return to stock prices. Fresh volatility in the market is unlikely now because of Adani Group's stocks – because the market will take cues from the budget," he added.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)