Why Vedanta’s India flagship company tumbled on Dalal Street today

Vedanta Ltd, the Indian flagship of Anil Agarwal-led energy and mining resources group, saw its share price sink on Friday after the company issued a clarification over a multi-billion-dollar greenfield project in the country that has been in the news this week.

Shares of Vedanta were down almost 8% to Rs 289.25 in afternoon trade on the BSE.

Earlier this week, media reports said Vedanta Ltd and Taiwan's Foxconn will invest $19.5 billion to set up a semiconductor project in Gujarat. The partners were earlier in negotiations to set up the big project in the state of Maharashtra but switched the location.

While such decisions are widely linked to issues around subsidies provide to manufacturers by local governments desirous of boosting jobs and investments in their states, there has been speculation around how politics has played its part in the final decision. The project is projected to create over 1 lakh jobs in Gujarat.

One report had said Foxconn is acting as the technical partner, while oil-to-metals conglomerate Vedanta is financing the project as it looks to diversify into chip manufacturing.

This had sent Vedanta’s stock price shooting over 20% over the last one week. However, this was still a third less than the 52-week high clocked in April this year. The company had seen its share price halve between April and June only to claw back part of the losses.

On Thursday after trading closed for the day, Vedanta said: “…the proposed business of manufacturing semiconductors is not under Vedanta Limited and we understand that it will be undertaken by the ultimate holding company of Vedanta Limited, Volcan Investments Limited.”

This has led to investors dumping the stock that had shot up on expectations that the entry into semiconductors will boost the long-term fortune and result in rerating of the company over the next few years.

Vedanta Group had previously unsuccessfully tried to take its India unit private. It was separately looking at a wider group restructuring into separate listed companies for different business verticals to unlock value.