The Adani-fty Effect 💰

CHART OF THE WEEK 📈

Ever wondered how Gautam Adani is unstoppable at moving higher on the Forbes richest rankings? It’s the Adani stocks that are on fire!

The Adani group has seven listed companies with a total market cap of Rs. 23 lakh crore that operate in sectors such as energy, ports, renewables, FMCG, and so on. Most of these stocks have been multi-baggers.

However, it’s not really earnings growth driving all the massive outperformance. They’re all trading at steep valuations compared to the market.

This valuation is based on average earnings multiple across all companies of 369x, which is much higher than the Nifty’s multiple of 21x.

There are several causes for this rich valuations, including:

• High Promoter Shareholding: As a result, there is less free-float in the public markets, which causes prices to rise more quickly in the event of rising demand.

• Political Scenario: Government initiatives drive the majority of the business segments that the Adani Group operates. Because it is adept at navigating through the public sector, the conglomerate has a distinct advantage in this case.

• Fast-Mover Advantage: Adani has been acting swiftly to seize fresh opportunities and sign ambitious agreements. Through an aggressive acquisition strategy, the group is also accumulating assets, and expanding its potential earnings.

That said, there are worries about the group companies being over-leveraged. This indicates that it has unacceptably high debt compared to its operating cash flows and equity, which could ultimately result in a debt trap and default.

Despite these rumblings, Adani stocks’ prices are on average up 110% year to date. Gautam Adani is already at the third richest in the world, only behind Elon Musk and Jeff Bezos now!