The Signal: Adani slips harder; markets grab support

Equity markets have seen continued distress in the week gone by as a severe downturn in Adani group shares has clouted the market mood. Following Hindenburg’s report alleging accounting fraud, the Adani group has suffered a cumulative market value crash of a massive $100 bn in the past six days.

The sentiments worsened after global lenders Credit Suisse and Citi Group assigned zero lending value to notes issued by the group firms. Given the extended market losses, Adani Enterprises has also called off its fully subscribed FPO.

Amid all the buzz around Adani stocks during the week, several positive global and domestic events have favoured the Indian economy. Let us have a look at both:

Global Events:

• The US Federal Reserve delivered a smaller rate hike of 25 basis points as expected and said slightly dovish. It is a good enough sign that we are almost near the end of an aggressive rate hike cycle, given that inflation is speeding down swiftly. The US dollar index fell on Thursday after the post-Fed’s decision.
• Shares of big tech companies like Amazon, Alphabet, Apple, Microsoft, and Facebook, with a trillion-dollar market value, have led the broad market S&P 500 rally in 2023. The S&P 500 index is up nearly 9% year to date, with Amazon stock gaining up to ~34% in Jan 2023. Big Tech companies have surged following their strong quarterly results. Facebook on Thursday reported better-than-expected revenue and may spend less this year than earlier forecasts.
• IMF has stated that despite headwinds, the global outlook is less gloomy when compared with October forecasts and could represent a turning point, with growth bottoming out and inflation declining. As per IMF, India and China remain at the bright spot, and both will contribute to half of the global growth in 2023. Emerging markets and developing economies have bottomed out as a group. Covid led restrictions dampened the economic activity last year in China. With the Chinese economy reopened, growth is seen rebounding this year as activity and mobility recover. It believes that the global economic outlook hasn’t deteriorated, and that’s positive news. The road to a full-fledged recovery, along with sustainable growth and stable prices, has begun and has a lot of ground to cover.

Domestic Events:

• The Goods and Services Tax revenues in Jan 2023 reached Rs. 1.56 trillion making the second-highest monthly collection since the launch in July 2017. It is the 11th month that collection revenues have remained above Rs. 1.4 trillion.
• Indian passenger vehicle industry ended the year 2022 on solid growth, 24% vs the previous year. The top six players who recorded the best-ever annual sales number last year (CY2022) continued the growth in CY23.Maruti Suzuki India, Hyundai Motors, TATA Motors, M&M, Kia India, Toyota Kirloskar Motor and Honda cars India cumulatively reported a 21% growth in sales numbers in Jan 2023 as compared to the same month last year.
• Manufacturing PMI in India saw strong growth in the first month of 2023. The sector’s seasonally adjusted PMI was at 55.4, marking a 19th successive month improvement in operating conditions. The PMI number remained above the long-term average despite a decline from the recent high of December 2022. It is far better than the growth in Eurozone & US.

• The budget added more cheer to the prevailing positive macro indicators. Higher Capex, supportive policies and tax cuts announced in the Union can support sustained demand growth and improve the long-term prospects for several economic sectors.

Conclusion:

Markets have seen many stock specific corrections in the past and the current correction in Adani is no different. It always takes stocks towards its fair value. It is also doesn’t necessarily reflect the strength or weakness of the broader market.

Broader market always follows fundamentals & India’s fundamentals is showing strong signs of recovery. Global and domestic cues continue to spring a long-awaited wave of optimism in Indian equities. While structural challenges are being resolved gradually, Indian equities seem to be on a strong upwards trajectory.

Key learning from correction Adani group stocks: Don’t put all your eggs in one bucket. Always diversify.

Markets this week.

Source: BSE and NSE

• Markets ended the week on a positive note.
• Indian markets rebounded amid extreme volatility throughout the week amid global as well as domestic events including the Union Budget 2023, Adani saga, corporate earnings, rate hike by US Fed, European Central Bank and Bank of England.
• ITC stock added the most in terms of market cap followed by Infosys, ICICI Bank, and TCS. Reliance Industries, Sun Pharmaceutical Industries and Power Grid Corporation of India on the other hand lost most of their market cap.
• Foreign institutional investors have sold equities worth Rs. 14,445 crore during the week, where as DIIs bought equities worth 14,184 crore.
• Oil prices have fallen during the week after strong US jobs data raised concerns about higher interest rates. European countries agreed to set price caps on Russian oil to limit Moscow’s funds for its attack on Ukraine

Weekly Leaderboard:

Source: BSE

Stocks that made the news this week:

?ITC share remained top gainer for the week as the market calculated overall tax impact of duty hike on cigarettes will be just 2 percent. The marginal tax hike is not the only factor in favour of ITC stock post budget, the positive announcement in Union Budget that put thrust on agricultural sector have resulted in the discourse around ITC strengthening.

?Ambuja Cements and ACC, acquired by the Adani Group in 2022, have showcased a much more resilient performance amid the ongoing rout in Adani Group stocks. Ambuja shares rose nearly 12 percent, in two straight sessions while most other Adani group stocks continued to tumble. The rebound in the stock came after the 16 percent plunge witnessed on February 1.

?Divi’s Lab declined ~15 percent during the week post significant deterioration in quarterly earnings. The company recorded a consolidated profit of Rs 306.8 crore in the December quarter of FY23, a fall of 66 percent year-on-year and 38 percent vs previous quarter, impacted by lower revenues as well as disappointing operating performance.