Adani Enterprises FPO subscribed 3% only, but all’s well that ends well

Shares of Adani Enterprises recovered on Monday, but they still stood below the price band of India’s largest ever follow-on public offer (FPO), thanks to recent selloff in the entire Adani pack after serious allegations by Hindenburg Research. The stock settled the day 4 percent higher at ₹2,878.50 against the price band of ₹3,112-3,276, with the ₹20,000-crore offer receiving a mere 3 percent subscription at last count. The FPO will conclude on Tuesday, January 31.

Analysts said the Adani saga is the latest example of risks involved in momentum investing.

Adani stocks have been on an uptrend over the last couple of years, defying rich valuations. Despite the recent steep fall, some group stocks such as Adani Enterprises, Adani Power and Adani Total Gas are still up anywhere between 29 and 122 per cent for the last one year.

“I partially agree that momentum, not fundamentals, caused the rally in Adani stocks. However, we cannot say this for all Adani companies. Some do have ground level businesses running. Nevertheless, one cannot deny the over-hyped stock prices. If you had invested in Adani companies looking at the business, review it. If you invested only looking at the prices, exit signals were already there,” says Vivek Bajaj, Co-Founder, StockEdge.

Also Read | Adani-Hindenburg Saga: Adani Group loses another ₹1.3 lakh crore in market cap as multiple stocks hit lower circuits

Adani Green, Adani Power, Adani Transmission and Adani Wilmar were some of Adani group stocks that extended losses on Monday, with the wealth of Gautam Adani falling below $90 billion level, as per Forbes’ billionaire data.

Adani Enterprises FPO

How the Adani Enterprises FPO fares will be key to how the group stocks perform in the near-term. For the FPO to go through, Adani Enterprises would require at least 90 per cent subscription. The management is confident the FPO will succeed. The company has so far said the issue will progress as planned. It has refrained from changing either price band or extend the time period.

“The management had the option to delay the FPO or reduce the issue price. Them not doing it suggests they may have a strong pipeline of committed large institutional investors who will enter the fray on the final day. The FPO subscription will not be as bad as it looks now. It’ll end much better,” says Nirav Karkera, Head of Research, Fisdom.

What should you do?

Out of 2.29 crore shares reserved for retail investors, they have put in bids for only 8.47 lakh shares, that is, nearly 4 percent of the retail quota. Karkera believes retail investors shouldn’t be excited about the FPO. “The primary motive for retail investors is to benefit from the price difference. With this gone way, there is no reason for retail investors to be excited about it.”

Notably, as many as 33 anchor investors such as Maybank Securities, LIC, SBI Employees Provident Fund, SBI Life, HDFC Life, Adia, Goldman Sachs Investment and Morgan Stanley Asia have already subscribed to the issue. The company allotted them 18.27 million shares at ₹3,276 per share. They have already paid the half amount which comes in at ₹5,985 crore. If the issue fails, the company says it will postpone its expansion plan. “We will postpone the growth programme for six to nine months and then do it later,” says Adani Group chief financial officer Jugeshinder Singh in an interview to the Hindu Businessline.

Should you sell Adani stocks?

Adani stocks have seen a dream rally over the last couple of years. Valuations ran much ahead of their earnings. The reality finally caught up. For example, even after the recent fall, Adani Enterprises is trading at a 12-month trailing PE of 285.64. These stocks have fallen anywhere between 31 per cent and 61 per cent from their respective 52-week highs. Adani Enterprises is down 31 per cent while Adani Green and Adani Transmission lost more than half of their value.

If not Hindenburg report, there could have been another trigger to prompt such a fall.

One should have one’s own hypothesis to invest in a stock. “People who blindly followed the momentum are paying the price. The lesson is always have a rationale for investing in a stock. If you believed it was a multi-decade growth story, then stick to your view. Unless you have lost confidence in your initial hypothesis you should stay invested,” says Karkera.

Early investors who are still sitting on profits would do well to book those and invest elsewhere. “If you invested recently, you may have incurred huge losses. While there is a real risk of losing out slightly more money, waiting for a while is worth a shot. Let more clarity emerge. Markets seemed to have priced in the worst,” says Karkera.

Fundamental principles of investing hold sway. The Adani episode is a reminder to play the momentum cautiously or simply stay away from it. A sound investment based on logic and fundamentals work in the long-term.

Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.