Thread by @Abhishe27960014

🚨"Adani Group in Crisis: Most Stocks Hit Lower Circuit Limits"

Will this trigger Downward Spiral for the Company?"

According to a report: "Adani tops up collateral on $1 billion loan after stock rout"

🧵to understand Downward Spiral

#Adani #AdaniPower #ADANIENT

1) When business owners need money for any reason, they sometimes give some of their company's shares to banks as a guarantee. This is called Pledging.

Adani group has also pledged its stocks for loans.

See below

2) When company's shares go down below a preset value that can cover bank's loan value, the bank will ask for more money or shares as a guarantee that the loan will be paid back. This is called a "margin call".

So, falling Adani stocks can trigger margin call for Adani group.

3) As a result, the business owner needs to either give the bank more shares or pay back some of the loan to bring the value of the shares that they have promised to the bank back up to the original level.

See below:

economictimes.indiatimes.com/news/company/c…

4) If the business owner can't provide more money or shares when the bank asks for it, the bank has the authority to sell the shares they have been given as a guarantee in the stock market.

5) If banks start selling shares in order to get their money back, it will make other investors less confident & they will also start selling their shares.

This can create a cycle of more selling and more banks asking for more money. This process is called Downward Spiral.

Source of the report that I quoted:

economictimes.indiatimes.com/news/company/c…