Will Adani stocks escape bears this week? ₹20,000 cr FPO, Hindenburg case in focus

Last week, on Friday, the majority of Adani Group stocks hit their lower circuits, which meant that there existed multiple sellers but no buyers.

Three Adani stocks namely Adani Transmission, Adani Green Energy, and Adani Total Gas closed at 20% lower circuits each on January 27th. While Adani Power and Adani Wilmar also took a beating to get locked at 5% lower circuits each. Further, Adani Ports also struggled and tumbled by over 16% at the end of the day.

Meanwhile, Adani’s flagship company, Adani Enterprises, which launched its FPO on Friday, plummeted by at least 20% before closing at ₹2,762.15 apiece on the BSE.

The massacre in Adani stocks led to a steep correction in Gautam Adani’s net worth. Asia’s richest man’s wealth is to the tune of $92.7 billion as of January 29, holding a seventh rank at the Bloomberg Billionaire Index.

According to the index, Adani’s net worth has dropped by $20.8 billion at the latest. However, year-to-date, Adani’s wealth has dipped by $27.9 billion.

Not just that, Adani’s stocks selloff also weighed down on the broader markets performance, with benchmarks Sensex and Nifty 50 diving by 2% each on Friday. By end of day, Sensex closed at 59,330.90, down by 874.16 points or 1.45%, while Nifty 50 shed 287.60 points or 1.61% to finish at 17,604.35.

Ajit Mishra, VP – Technical Research of Religare Broking said, the carnage in the Adani group stocks cascaded across the board and the banking sector faced the maximum pressure. Participants were already facing challenges due to mixed global cues and caution ahead of the Union Budget and this breakdown has further added to worries.

In the week between January 23rd to 27th, Adani Wilmar and Adani Total Gas stock has dropped by around 7% each. Adani Power’s weekly drop is around 10%. Adani Enterprises shares plunged by around 20% this week. The worst hit were Adani Transmission stock tumbling by nearly 27% in the week followed by Adani Green Energy and Adani Ports equity shares which have dipped by nearly 25% and 23% respectively, on Dalal Street.

The chaos in Adani stocks comes after a New York-based investment research firm, Hindenburg Research, accused Adani of stock manipulation and fraud schemes.

Hindenburg’s research report dated January 24, said, “we reveal the findings of our 2-year investigation, presenting evidence that the ₹17.8 trillion ($218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

However, Adani’s top management had denied Hindenburg’s accusations, calling the research report of latter as “maliciously mischievous, unresearched report”. The management has also called Hindenburg’s report as principal objective of damaging Adani’s ₹20,000 crore FPO, which is one of the biggest follow-on public offers in India. Also, Adani has given detailed clarity over the accusations by Hindenburg.

Read here: ‘Myths of short seller’: Adani gives point by point reply to Hindenberg’s allegations

Will selloffs in Adani stocks continue this week?

According to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, Adani stocks are likely to continue under pressure due to the fallout from the Hindenburg report. The elevated valuations of Adani stocks are a serious concern.

Manish Chowdhury, Head of Research at Stoxbox said, “with lots of noise around Adani Group shares over the last two days, it is advisable for investors to stay away from them till clarity emerges on the various controversial remarks from the US-based Hindenburg Research.”

Adani’s stances on Hindenburg’s allegations will be keenly watched ahead. Reports have stated that a legal lawsuit is likely in the offing by Adani against the US-based research firm.

Apart from this, Adani’s FPO will stay in focus as well. On the first day of the issue, Adani Enterprises recorded bidding of merely 4,70,160 equity shares against the offered size of 4,55,06,791 equity shares, as per BSE data. The price band for the FPO is set from ₹3,112 to ₹3,276 per FPO equity share for all categories of investors.

Adani has ruled out the possibilities of making changes in its FPO despite lacklustre demand on Day 1 due to a steep selloff after Hindenburg’s allegations. The group has stated that Adani Enterprises will continue its FPO as per schedule and on the announced price band. Hence, there will be no change in the FPO.

According to a Reuters report, JP Morgan said, while the Hindenburg report focused mainly on equity valuations within the group, we are primarily concerned about the underlying credit profiles of group companies given underlying bank exposures.”

Morgan thinks that the underlying assets at the bond level are quite adequately leveraged, while the promoter-level in the group is an unknown and is something that can be mitigated only through an equity raise, such as the ongoing Adani Enterprises FPO.

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.