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BW Businessworld

Market: Modi Link, But No Gain

A look at the pre- and post-Modi election market cap of some of the promoters said to be close to the PM shows they did not benefit from their proximity

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They continue to rule the “super rich” charts, but the corporates, supposed to be close to the Modi government, have not quite benefitted, when it comes to their market caps, if the statistics of the last two-and-half years are anything to go by.

Sample this: It was repeated ad nauseam that the Adanis provided financial muscle to Narendra Modi’s campaign in 2014. As a corollary, it was expected that the Adanis would “benefit” out of the association. Instead, in the last two and a half years, Adani Power’s market cap has come down from Rs 15,968 crore to Rs 9,945 crore, while that of Adani Enterprises has come down from Rs 58,257 crore to Rs 7,385 crore.

“Adani’s upfront investment is very high, whose results are expected in the long run. The friendship (with Modi) could help to an extent, but ultimately, when the debt starts rising, the market becomes jittery. Adani’s enterprises have been doing a lot of expansion on borrowed money and the numbers haven’t shown up yet, hence the explanation to the market cap,” says Daljeet Singh Kohli, head, Research, IndiaNivesh.

The market cap of the Adani Ports and Special Economic Zone’s in the last two and a half years has, however, seen a rise from Rs 46,576 crore to Rs 56,972 crore.

Reliance Industries chairman and managing director Mukesh Ambani, another businessmen with supposed closeness to Modi, remains the richest businessman, though with a reduced market cap of Rs 3,23,515 lakh crore, against Rs 3,48,842 lakh crore in 2014. This reduced market cap, however, doesn’t reflect his underperformance. Experts view this as a case of long gestation period of the heavy capital investment in telecom and petrochemicals business.

“Market valuations of companies are based on the present assessment of their future profitability. In case of Mukesh Ambani’s group, last few years saw massively large capital investments especially in telecom and petrochemical sectors. Successful commercial launch of these massive projects would lead to substantial improvement in revenues and profits thereby getting reflected in improved market valuations of the group,” says Ajay Bodke, CEO & Chief Portfolio Manager, Prabhudas Lilladher.

Mukesh’s younger brother Anil has seen a steeper fall in almost the entire industry portfolio, Reliance Communications, Reliance Power, Reliance Infrastructure, Reliance Capital. Reliance Defence and Engineering is an exception. “The major issue with the Anil Ambani group was the debt and the performance of the businesses in the last few years. Defence was seen as a good opportunity with the government’s Make in India policies, but with no concrete action on ground, the stocks stagnated. The initial rally and euphoria faded overnight,” says Kohli, of IndiaNivesh.

The largest hit among the companies featured here has been taken by Naveen Jindal’s Jindal Steel & Power (JSPL), which witnessed a massive fall in the market capitalisation of around 74 per cent. A former Congress MP, Jindal is also very well networked with the BJP leadership.

“The coal mines were most critical in Jindal’s portfolio and with them gone, all his other businesses became unviable. With heavy debt and halt in the cash flow, the stock prices were bound to crash completely,” says Kohli.

Many steel firms in India escaped the emerging threat from aggressive capacity expansion in the Chinese steel industry. “JSPL, which opted for aggressive expansions through debt had to face the maximum adverse impact in terms of losses and fall of market cap,” explains G. Chokkalingam of Equinomics.

With oil prices rising from their 2016 January lows and zinc hitting a multi-year high, along with a substantial rise in other metals, Anil Agarwal shines as the biggest gainer. The rise in the Anil Agarwal group is largely into the commodity space which explains the unique success as compared to other groups’ performance. Whereas other groups’ heavy exposure to infra, telecom and steel industries pulled their overall group performance.

“The diversification of Agarwal’s business including the conglomerate and the commodity prices playing their part, fueled the market capitalisation,” adds Kohli.