Geojit Financial Services Blog

Market Decoded: Distractions ahead of the largest FPO from Adani Group and Union Budget 2023

This week, especially in the last 2-3 trading days, the domestic stock market turned pessimistic and that was sparked by Hindenburg Research’s (US-based) negative assessment of the Adani group.

The total market value of Adani’s 10 listed companies (including Ambuja, ACC, & NDTV), is at Rs 15 trillion today. The group Mcap has fallen by 23% in the last week from 7% of total India Mcap to 5%.

Owing to the excessive lending exposure, the decline in group stocks is also impacting the performance of banking stocks. The Nifty Bank index corrected by about 6% in the last three trading days, which is -8.4% down from its 52-week high.

The aggregate loan of top 5 Adani Group companies is estimated to be around Rs 2.1 trillion. It is estimated that 60% lenders are overseas and 40% are Indian banks.

The exposure of private banks is low at 10%, while that of PSU Banks is high, accounting for 30%. As a result, the performance of PSU Banks is the most hit in the last 3 trading sessions.

The Nifty PSU index is down by about -10% compared to -5% for the Nifty Private Bank index.

Prior to the news to the Indian market was in a state of flux. Actually, it was heading nowhere, being penduline last week in a range of +/- 0.5% daily.

The movement was happening on stocks in tandem with the publication of Q3 results and sometimes contemplating budget expectations. And as the sentiment turned upside down, even decent results announced by blue chips are having a pounding effect on the stock price.

The strong performance of the global market is not helping the domestic market too. The S&P 500 has gained 4% in the last five trading sessions as global markets anticipate less aggressive monetary policy. The Nifty50 index down by -2.3%.

The Indian market is also distracted by the upcoming Budget as the focus is on the plausibility of an increase in the capital gain tax.

A rationalization is expected in LTCG Tax in the future, and how it will be handled in this budget is the point of contention. If the tax or holding period is increased, it will have a short-term effect on the market.

Secondly, FIIs selling on India is increasing as funds are shifting to other EMs attracted by the discount valuation and revamp expected in future economic growth as the covid zero-tolerance policy has been put on halt.

The deep correction of the developed market in 2022, the likelihood of a soft landing, and in anticipation of neutral monetary policy are boosting global bourses. While India continues to trade at a premium and earnings growth is expected to slow in 2023.

The mindset of domestic investors is in flux. Year till date, the Indian stock market was underperforming. And now it is contemplating the cascading effect on the broad stock market due to the unfavourable performance of Asia’s wealthiest promoter companies.

The other point investors have to consider is the outcome of the budget. Plus, the weak second-tier Q3 results and rising FIIs selling.

The Indian stock market is getting squeezed from all four sides. Note that the main moto of a smart investor is to identify the stock or sectors best placed as per their own financial plan and buy and hold them for the long term.

It will be secondary if they are able to achieve that at the minimum risk and maximum return though that is the plan. They are the ones in a better position to capitalise on the weakness on the market.

They will play cautiously when the market is very buoyant and would have developed a buffer of cash, gold, and debt. We have been advising to hold a balanced portfolio for the past year. And the ongoing disruption is the best time to increase exposure to equity when the consensus is sell-off.

It is unlikely that the ongoing chaos will derail India’s rising economy’s long-term story. We have a long way to go and much to achieve. There are many stocks and sectors with high quality and credentials.

If you have money on the table, it is a good time to start executing in a calculated manner with a medium to long-term view. If you are a cautious investor, you can wait for the time period and deploy in the future in a SIP manner.

Please note: We don’t have coverage on Adani Group stocks and the points referred to in the article is only as an information and not recommendations.

First published in The Economic Times