Uncertainties over Indian Prime Minister Narendra Modi’s capability to execute policies amid the new balance of power in the ruling coalition may have a lasting impact on the markets for some time to come. (Photo by Ken Kobayashi)
BENGALURU — Indian election results showing an underwhelming victory for Prime Minister Narendra Modi’s coalition sparked volatile trading in shares of companies owned by Gautam Adani, prompting an opposition leader to claim that the fates of the nation’s leader and its most prominent billionaire were “correlated.”
Adani Group shares rose on Wednesday as partners in Modi’s ruling coalition reaffirmed their support. Adani Enterprises and Adani Power were up 6% and 0.5%. Adani Ports and Special Economic Zone rose 8%, while Adani Total Gas and Adani Green Energy were up 3% and 11%.
India’s benchmark Sensex index and the Nifty 50 were up 3.2% and 3.4%.
The rise was a rebound from a major dive the previous day. While exit polls over the weekend had seemed to indicate a landslide victory for the coalition led by Modi’s Bharatiya Janata Party (BJP), leading to a jump in Adani stocks, the coalition’s margin of victory started looking slimmer and slimmer on Tuesday as the vote count went on.
Adani Enterprises had fallen 19% on Tuesday. Adani Ports was down 21% and Adani Power was down 18%.
The rating agency Moody’s said on Wednesday that while it expected “policy continuity,” there could be delays in “more far reaching economic and fiscal reforms that could impede progress on fiscal consolidation.”
The sharp fall in Adani stocks even drew a snide remark from opposition Congress party leader Rahul Gandhi. “If you have looked at the Adani stocks, Adani is correlated with Modi,” he said at a news conference on Tuesday. “If Modi falls, Adani falls.”
The national election results announced Tuesday night showed that the coalition snared only 292 seats, far below its widely publicized target of 400 seats. The BJP managed 240 seats on its own, down from 303 in 2019 and well short of the halfway mark of 272, leaving Modi vulnerable to the whims of its coalition partners.
Uncertainties over Modi’s capability to execute policies amid this new balance of power may have a lasting impact on the markets for some time to come. While claiming that the underlying fundamentals of India’s economy remain strong, Amisha Vora, the chairperson of the investment firm Prabhudas Lilladher, also said that “investors should brace for volatility in the short term.”
Vora added that the loss of Modi’s majority was what had caused corrections in public and infrastructure stocks.
Vipin Singhal, associate director at financial services firm Anand Rathi Advisors, said: “Market perceptions tend to associate certain companies with political parties, but Adani’s rise to where he is now is to do with his business choices.”
“Since most of the Adani Group companies are focused on infrastructure, recent volatility in the stock is largely because of uncertainty around the new coalition government’s ability to demonstrate policy continuity and infrastructure spending,” Singhal said.
The scrutiny on Adani is far higher than on any other infrastructure company. Frantic deal-making helped Gautam Adani — known for his close ties to Modi — transform his low-key company into a sprawling conglomerate that has become India’s largest commercial port operator, private-sector power transmission and distribution company, city gas distributor and coal-based power producer. The Adani Group’s operations also span sectors such as defense, roads, railways, green hydrogen, data centers and consumer goods.
The group’s expansion dovetailed with the Indian government’s push to develop world-class infrastructure that it hoped would help the South Asian nation attract investments amid growing disenchantment with China.
But its debt-fueled expansion suffered a temporary setback last year after short seller Hindenberg Research alleged financial irregularities at the group. A wild selloff thereafter not only shaved off $140 billion from the conglomerate’s market value, but also forced it to scrap a $2.5 billion share sale.
The group took out $2.1 billion in share-backed loans to regain investor confidence, but about 16% of promoter shares remained pledged in Adani Power until March 2024, down from about 25% the year before.
In Adani Green Energy, about 1% of the promoter shares were pledged, as against 1.7% in Adani Ports. The Adani Group said in a statement last week that the group’s EBITDA jumped 45% on the year in the fiscal year ending March 2024 to $9.93 billion, while net debt was $21.76 billion.
The Adani Group is back on an expansion spree. Last month, the conglomerate announced a board approval to raise $3.5 billion as it expands investments in business sectors such as airports, real estate and data centers.
“The quantum of debt should be looked from a perspective of the ability to repay,” said Singhal from Anand Rathi Advisors. “The [Adani] group has moderated its capital expenditures and inorganic growth, and they are in a much better position in terms of cash flow and net leverage.”
source : asia.nikkei