On a day of 'no negative surprises': Adani stock rout spoils party

Nifty falls over 2% from day's high to end in the red...

The rout in shares of Adani group saw the benchmark Nifty end in the negative on Wednesday. This was the first decline for the 50-share index on Union Budget day in three years. In intra-day trade, the Nifty swung about 620 points, or 3.6 per cent — the third most during the 11 budgets presented since Narendra Modi took charge as the country’s Prime Minister in 2014.

The markets opened positive amid positive global cues and soared more than 2 per cent following the announcement of Budget measures, which included reduction in income taxes and increased spending on infrastructure development. Also, lowered fiscal deficit target of 5.9 per cent and expectations of a surge in economic growth propelled the bulls. However, the optimism was quelled by the rout in Adani group firms, wiping out nearly Rs 8 trillion in five days. Flagship company Adani Enterprises saw its share price crash as much as 35 per cent before ending 27 per cent lower over its previous day’s close. Adani Ports & SEZ plunged 18 per cent. Both stocks are part of the Nifty index, which finished 0.26 per cent, or 46 points, lower at 17,616.3.

The market was abuzz with talks that certain foreign banks were liquidating Adani group-pledged shares.

The Sensex, which has no presence of Adani companies, managed eke out 158 point, or 0.27 per cent, gain. However, the index fell over 1,000 points from the day’s high of 60,773 to end at 59,709 with shares of State Bank of India (SBI) dropping 4.8 per cent.

“The sharp increase in capital spending in a year of global uncertainty, credible fiscal consolidation, no change in capital gains tax regime for equities, lower-than-expected market borrowings, and a likely shift in the RBI stance augur well for stocks,” said Ridham Desai, head of Equity Research and India Equity Strategist, Morgan Stanley, in a note.

Desai said the Budget measures will “probably” lead to an increase in consensus earnings estimates.

If not for the rout in Adani stocks, the market scorecard would have looked much better, said experts.

“The Budget was very credible as the numbers presented did not throw up any negative surprises. It shows a clear focus on increasing capital expenditure which shows commitment to drive the future growth. Also, focus on farm economy will lift rural growth,” said A Balasubramanian, managing director & CEO, Aditya Birla Sun Life AMC.

In its last full-fledged Budget before next year’s general elections, Finance Minister Nirmala Sitharaman sharply raised the capex outlay to Rs 10 trillion (3.3 per cent of GDP) from an already elevated Rs 7.3 trillion (2.7 per cent of GDP) in FY23, equating to a 37.4 per cent year-on-year rise.

“Markets welcomed the Budget with enthusiasm. Later, the Adani Group stole the stage when its stocks crashed, significantly depressing market sentiment. Although tonight’s Fed meeting is significant, the Adani drama is the main event that the market will be focusing on,” said Parth Nyati, founder, Tradingo.

Of the 19 sectoral indices of the BSE, only four managed to end with gains. BSE FMCG and BSE IT index outperformed with gains of over 0.7 per cent each.

Overall market breadth was negative, with 1,176 stocks advancing and 2,368 declining. Both Nifty Smallcap and Nifty Midcap indices ended with over 1 per cent loss.