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Round 2 Goes To Adani As Institutions Back India's Largest FPO And Bears Retreat

Failure of India’s largest public issue would have had devastating effects on the capital markets, directly and indirectly.

<div class="paragraphs"><p>The Adani Group logo is seen on the facade of one of its buildings. (Photo: Amit Dave/Reuters)</p></div>
The Adani Group logo is seen on the facade of one of its buildings. (Photo: Amit Dave/Reuters)

It looks like a 1-1 draw on the scoreboard. If Hindenburg Research was successful in hammering Adani Group stocks, the second round goes to Asia’s richest. The Rs 20,000-crore FPO has been fully subscribed, with some heavy lifting by institutions.

This is far more important for the markets than the short selling itself or any attempt at trapping the bears. Failure of India’s largest public issue would have had devastating effects on the capital markets, directly and indirectly.

It would have first derailed Adani’s plans, set the markets on a free-fall and the ripple effects would have been felt across other financial markets. This catastrophe has been averted for now. The Adanis stood their ground, decided not to extend or revise the issue price and reassured investors the issue will get fully subscribed.

What's more significant now is the institutional backing, despite the heavy short selling in the market that unnerved investors. What looked like a washout on Day One of the issue, changed course after the Abu Dhabi-based conglomerate International Holding Co., or IHC, invested $400 million in the FPO.

IHC’s CEO Syed Basar Shueb, in a statement, expressed confidence in the fundamentals of Adani Enterprises Ltd. and saw "strong potential for growth from a long-term perspective".

The last day saw more institutional investors stepping in with the QIB portion getting subscribed by 1.26 times. Retail investors’ response was lukewarm with just 12% subscription.

The selling pressure continues in select stocks of the group, but they don't appear to be hurting the core, at least for now. Have Hindenburg and short sellers given up? We don't know. But they have backed off for now.

This could be for two reasons: One, short sellers may have made their money, at least in the first rounds, and realised any further shorting after sharp slides is borne with risk. Second, the risk of going short in the face of two very big events would have forced them to close positions and not take undue risk.

The budget will be presented on Feb. 1, which could potentially revive the spirit of the bulls, as the finance minister is expected to give growth a big push. More importantly, the Fed will announce its policy rates and hint at a possible slowing of future rate hikes.

Fed Chair Jerome Powell may or may not take a soft stance. The mood and hope in the markets is that he will. Either way, it’s too big an event to be ignored. Seasoned bears know, don’t they?

What we don’t know is how the next round of Anderson vs Adani battle would be fought. Whether Hindenburg is right or the Adanis are is a different matter which will see arguments and counter arguments in the coming days and months. For now, the storm has receded.

Muralidhar Swaminathan is Consulting Editor at BQ Prime.

Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.