India's stock regulator tried to calm jittery investors fleeing the stock market — but even that's not helped Gautam Adani, whose companies' shares continue to take a beating
India’s market regulator tried to assure investors the country’s markets are “stable”.
It acknowledged there was an “unusual price movement in the stocks of a business conglomerate” in the past week.
Adani Group companies have lost $110 billion in market cap amid a short seller attack.
India’s stock markets have been on a wild roller-coaster ride since tycoon Gautam Adani’s business empire came under siege from a US short seller.
The market rout in the share prices of Adani companies has gotten so bad that even India’s market regulator stepped into the fray on Saturday, to calm investor concerns.
The conglomerate’s flagship company, Adani Enterprises was trading 1% lower after losing as much as 10% on Monday. The stock has already lost over half its market value this year so far. The shares of Adani Transmission were down 10% while those of Adani Green Energy, Adani Power, and Adani Total Gas were down 5%.
‘Big Short’ investor Michael Burry warned stocks would crash and rallies wouldn’t last. Here are 6 of his key tweets in 2022, and what they meant.
“The Big Short” investor Michael Burry suggested the S&P 500 could plunge below 1,900 points.
The Scion Asset Management chief based his prediction on how past crashes have played out.
Burry said brief rallies were likely, and joked about his penchant for premature predictions.
Michael Burry, the hedge fund manager of “The Big Short” fame, rang the alarm on the “greatest speculative bubble of all time in all things” in the summer of 2021. He warned the retail investors buying up meme stocks and cryptocurrencies that they were headed towards the “mother of all crashes.”
The Scion Asset Management chief’s grim prediction may be coming true, as the S&P 500 and Nasdaq indexes tumbled by 19% and 33% respectively in 2022. In tweets posted in May 2022 then subsequently deleted, Burry took credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies.
Here’s a roundup of Burry’s best tweets about the stock-market slump:
The pandemic crash was just the start
The S&P 500 index has rebounded strongly from the pandemic crash in the spring of 2020, rising from a low of 2,192 points to around 3,800 points today. However, it could halve in value to below 1,900 points over the next few years, Burry tweeted on May 3, 2022.
When the S&P 500 has crashed in the past, it has traded lower several years later, Burry noted. He pointed to the index bottoming 13% lower in 2009 than it did in 2002, 17% lower in 2002 than it did during the Long-Term Capital Management fiasco in 1998, and 10% lower in 1975 than in 1970.
If the benchmark index follows that historical pattern, it could trade 15% lower than its level in the spring of 2020, Burry said.
There may be epic but short-lived rallies
A “dead cat bounce” refers to a temporary rebound in stock prices after a significant fall, often because speculators buy shares to cover their positions.
They often occur during major declines in the stock market, Burry said in a May 4 tweet. The implication is that investors shouldn’t get their hopes up about any rallies in the coming months, as they’re likely to be brief respites that won’t result in a market recovery.
Burry noted that 12 of the 20 largest one-day rallies in the Nasdaq index took place as the dot-com bubble burst, while nine of the S&P 500’s 20 biggest one-day rallies occurred in the aftermath of the Great Crash in 1929.
Don’t be fooled by stocks rebounding
Stocks could stage multiple rallies before the crash is over, Burry warned in a May 5 tweet.
He noted that after the dot-com bubble burst, the Nasdaq rallied 16 times by more than 10% — gaining on average 23% each time — on its way to a 78% decline at its nadir.
Burry also emphasized that after the Great Crash of 1929, the Dow Jones index rallied 10 times by more than 10%, rising by an average of 23% each time, before bottoming at a 89% decline.
Stocks are on a dangerous trajectory
The US stock market appears to be following the pattern of previous bubbles, leaving it poised for a monumental crash, Burry noted in a May 8 tweet.
The Scion chief pointed to the S&P 500’s trajectory over the past 10 years, noting it was strikingly similar to the index’s chart for the decade leading up to the dot-com crash, and the Dow’s chart for the 10 years before the Great Crash of 1929.
Burry suggested that human nature was behind the consistently decade-long buildups, and implied that history is repeating itself.
Burry predicts correctly, but early
Burry appeared to take a victory lap in a May 10 tweet, suggesting he believes the stock-market crash that he’s been warning about has finally arrived.
The Scion boss joked he was early with his prediction, just as he was during the mid-2000s US housing bubble.
Burry also nodded to Elon Musk calling him a “broken clock” last year, after the Scion chief bet against Tesla stock, predicted it would collapse in value, and questioned Musk’s motives for selling his company’s shares.
Stocks are set to tumble a lot further
7/7 SLIDES
Collectively, the rout wiped off more than $110 billion from 10 companies related to the Adani Group as of Friday, per Bloomberg.
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And it’s not just Adani stocks that are getting hammered.
Jittery investors are keeping up the pressure on Indian stocks — the Sensex is trading 0.5% lower at 1.45 p.m. local time today while the Nifty 50 was down 0.5%. The benchmark Sensex and Nifty 50 indices have already lost 0.5% and 1.4% this year so far.
It’s no surprise then that the Securities and Exchange Board of India, or SEBI, said in a statement on Saturday: “The Indian financial market as represented by Sensex and Nifty has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner.”
What’s strange is that SEBI acknowledged it has observed an “unusual price movement in the stocks of a business conglomerate” in the past week, but did not name the company directly.
Shares of Adani Group companies have been unusually volatile since US short seller Hindenburg Research released a scathing report on January 24 alleging a “brazen stock manipulation and accounting fraud scheme” at the conglomerate. And even though Adani Group defended itself vigorously, Hindenburg also doubled down on its initial report.
Adding to Adani’s woes, S&P Global cut its outlook on two Adani companies — Adani Ports and Special Economic Zone and Adani Electricity — from stable to negative, according to a note seen by Insider. Moody’s meanwhile did not change its rating for Adani companies, but warned the sell-off in their shares could hit the group’s ability to raise funds in the next one to two years, according to a Friday note seen by Insider.
Adani Enterprises — the conglomerate’s flagship company — already scrapped a $2.5 billion secondary share sale last Wednesday. It has also shelved a $122 million bond sale, Bloomberg reported on Saturday.
The fallout from the short seller’s report also spilled over into the broader Indian markets and prompted concerns about corporate governance and debt in the country.
And even while SEBI sought to shore up investor confidence in the country’s markets by saying they have been “viewed positively by investors” — Indian equities were Asia’s top performers in 2022, according to a Reuters analysis — some analysts feel that investors might want to rebalance their portfolio in favor of other Asian markets — like China. Hong Kong’s Hang Seng Index is up 7.2% this year so far while the Shanghai Composite is up 4.8%.
The Adani Group did not immediately respond to Insider’s request for comment.
