Does the latest rally in Adani stocks mean the worst is over? Group’s m-cap shy of ₹8 lakh cr

To know whether the worst is over in Adani stocks, there needs to be a much longer duration of upside in them. The sustainability of Adani stocks is still uncertain and most likely they will be sensitive to developments in the near term.

On Thursday, flagship firm Adani Enterprises stock gained nearly 3%, while Adani Ports jumped by 3.5%. Adani Total Gas saw an upside of 4.4%. While the remaining Adani stocks such as Adani Transmission, Adani Power, Adani Wilmar, and Adani Green Energy hit a 5% upper circuit each on BSE.

While the cement business also picked up. Ambuja Cements was up by nearly 5% and ACC surged by nearly 2%. In the media business, NDTV rallied to end at 5% upper circuit.

The market cap of Adani Group stocks climbed by over ₹30,170 crore in one day. By end of March 2nd, the group’s 10 companies together held a market cap of ₹7,86,342.14 crore. On the previous day, the m-cap of these firms was a little over ₹7.56 lakh crore.

Large deals were the biggest contributor to the bulls in Adani stocks. On BSE and NSE, in a bulk deal, SB Adani Family Trust sold around ₹5460.19 crore worth of shares in Adani Enterprises; nearly ₹2805.58 crore in Adani Green Energy; around ₹5,282.33 crore in Adani Ports; and nearly ₹1,898.25 crore in Adani Transmission.

Some of the major buyers in the large deal of these four Adani stocks are — GQG Partners, Goldman Sachs-backed funds, Reliance Trust Institutional Retirement Trust, Active Emerging Market Equity, and AustralianSuper among many others.

It will be keenly watched if Adani stocks continue to rally and cross a cumulative m-cap of ₹8 lakh crore this week following such developments.

Is the worst over for Adani stocks?

According to Nirav Karkera, Head of Research, Fisdom, the recent spurt needs to sustain for longer before one can distinctly recognize it as either entering a new range, the beginning of a fresh rally, or at least not simply a dead-cat bounce.

He added, “the stocks still remain highly sensitive to reported developments. Some spurt has been visible on a couple of counters owing to block purchases, but this may not really be an indicator of anything more than the buying entity’s conviction in the company’s growth prospects at the moment.”

Another important factor to consider, as per Fisdom expert, would be “the distinction between every stock and the state of businesses behind it.”

Karkera explained that while there may be certain and different perspectives making the case for stocks like Ambuja Cement, ACC, Adani Ports and Adani Wilmar, other group entities seem to reflect strong bearish sentiments.

Further, he said, “While there is a fair probability that the recent uptick may mark the onset of a rally across many Adani group stocks, this premise alone may be inadequate to make an investment decision on the stock.”

Meanwhile, Abhishek Agarwal Managing Partner of Rockstud Capital thinks there is an overreaction to Adani group companies after the Hindenburg report.

Agarwal said, “Adani’s success is not overnight. Leverage in debt or dilution of equity are the tools for funding the growth of the business. No default history, no corporate governance red flag from SEBI or similar governing agencies, and no real evidence to many claims of the report. Certainly, the report has caused massive financial and reputation damage to their stock and bonds.”

Lastly, Agarwal concluded, “They are forced to early repayments of loans to avoid pledge revoke on their shares. The bounce back will happen surely, and the present turmoil is temporary.”

Will Supreme Court’s order impact Adani stocks?

The Gautam Adani-backed empire is currently facing scrutiny from Sebi after the apex court formed a 6-member committee to look into regulatory mechanisms to protect investors’ after the US-based short seller Hindenburg’s report fuelled large investor losses.

The apex court asked the market watchdog to investigate the allegations highlighted by Hindenburg against Adani Group on whether there was any stock manipulation or violation.

Gautam Adani has welcomed the Supreme Court order. He tweeted “it will bring finality in a time-bound manner,” adding, “truth will prevail.”

In this regard, Karkera said, the “committee has been set up to identify possible malpractices that could have led to deliberate manipulation of stock prices to benefit a few at the cost of common shareholders’ interests. “

While the committee is expected to work closely with SEBI, the outcome could swing in any direction, however, Karkera said, “it is almost definitive that the committee’s verdict can be expected to have an amplified effect on the stocks’ prices in the either direction depending on the verdict.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.