The Adani fiasco, once again, tested our systemic preparedness, regulatory response, exchange mechanisms, and most importantly, market resilience. The good news is that we have done reasonably on all these critical aspects. Our markets remained stable and we did not see a contagion effect spread over into the broader market. But, we still have to understand what this event means to the evolving capital market scenario.
Firstly, this event sets the stage for a gradual derating of Indian equity valuations. We are still travelling with elevated valuations and it would be very difficult to sustain this anymore. Investors will start rethinking their valuation paradigms, becoming more responsible while valuing companies and turning more grounded.
The fear of getting punished when staying invested in an over-expensive quality stock will certainly dawn on investors who were drunk on COVID valuation excesses. But, this valuation reset will be more gradual and gentler than what we saw in the Adani pack. That would not make the pain any lesser for investors stuck in super expensive stocks. Expensive, quality stocks are on a slow derating mode while other expensive stocks will derate at the first sign of bad news. This calls for practising far more responsible investing now than ever before.
The era of COVID excesses in the market is over and it is time for investors to adapt to the new normal.