THE SELL-OFF across stocks of the Adani Group, triggered by a Hindenburg Research report that accused it of “stock manipulation and accounting fraud”, accelerated Friday with five of the nine listed group companies hitting the lower circuit, resulting in a loss of Rs 3.37 lakh crore in the group’s market capitalisation. Over the last two trading sessions, on Wednesday and Friday, the Adani Group has lost Rs 4.17 lakh crore in market cap.
Friday’s fall comes a day after the Adani Group said it was planning to sue Hindenburg Research, a New York-based investor research firm that specialises in short selling, for its “maliciously mischievous” report.
The sharp decline in Adani stocks also coincided with weakness in broader indices. The BSE Sensex fell sharply by 1,192 points intra-day before closing 1.45 per cent, or 874 points, down at 59,330.90 Friday. The broader NSE Nifty slumped 1.61 per cent, or 287.6 points, to end at 17,604.35.
It is learnt that the slide in broader markets, precipitated by the hammering of Adani stocks and bank shares, has triggered some degree of concern within sections of the Government, too, given that this comes just days ahead of the presentation of the Union Budget on February 1.
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Continuing Wednesday’s fall, Adani Transmission, Adani Total Gas and Adani Green Energy fell 20 per cent each, and Adani Power Ltd and Adani Wilmar ended 5 per cent down each Friday. Adani Ports closed 16.03 per cent down and Ambuja Cements fell 17.16 per cent. The group’s flagship Adani Enterprises (AEL) fell 18.5 per cent and ACC fell 13 per cent during the day.
The hammering of AEL for the second day — after a break in trading Thursday for Republic Day — has raised question marks over the company’s Rs 20,000-crore follow-on public offering (FPO), given that the over 18 per cent slide in the shares of the company Friday meant that it ended the day at Rs 2,769 — a 11-15.5 per cent discount to the FPO price band of Rs 3,112-3,276 a share.
As Adani Group’s market cap fell by 18.5 per cent, Gautam Adani too saw a significant decline in his personal fortunes. On the Forbes Billionaires list, Adani slipped to seventh with a $22.6 billion decline in his net worth, which fell to $96.6 billion.
Market participants linked the Sensex fall to the overall weakness in FPI participation in Indian equities over the past couple of weeks. Compared to FPI inflows of Rs 47,358 crore seen in November and December, there has been an outflow of Rs 17,000 crore by FPIs in January. On Friday, the FPIs sold a net of Rs 5,977.8 crore in the domestic capital market, the BSE’s provisional data showed.
“January has seen an outflow of FPIs on account of relatively higher valuations in Indian markets and that has led to some weakness in Indian premier indices. Money is flowing to other markets that are relatively cheaper,” said Panjak Pandey, head of research, ICICIdirect.com.
He said there is no linkage of the decline in Adani Group stocks with the indices. Experts say FPIs are cautious ahead of the Union Budget and upcoming US Fed (FOMC) meetings, which is leading to correction in broader markets.
Multiple analysts, however, say some banks with exposure to Adani Group companies have come under pressure because of the fall. For example, SBI has seen a dip in its share prices by over 9 per cent over the last two trading sessions. Vinod Nair, head of research, Geojit Financial Services, said public sector banks were more impacted compared to private banks owing to their high exposure to Adani Group companies.
The stock movement of other key companies that form the Sensex showed that while RIL and HDFC bank fell 1.9 per cent during the day, TCS and HUL fell 0.6 per cent and 0.3 per cent, respectively.
There is also a view that markets will stabilise over the next few days following this broader correction, which has made some quality blue-chip stocks cheaper, making a case for investors to make a fresh entry.
“We expect markets to stabilise over the next few trading days as we expect bargain hunters to emerge and start picking good quality stocks with history of free cash flow generation and which are available at reasonable valuations,” said Nishit Master, portfolio manager, Axis Securities.
A part of the under-performance in India vis-à-vis the global markets, of late, can be explained by the huge out-performance in the country last year, and markets attempting to revert to the mean, he said. “However, we believe that India remains the fastest growing major economy globally and should continue to attract foreign capital in the medium to long term, which should bode well for Indian markets,” Master said.
Responding to the threat of legal action by Adani Group, Hindenburg Research has said that it stands by its report and any legal action taken against it would be “meritless”. “If Adani is serious, it should also file suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process,” it said.
On Thursday, Jatin Jalundhwala, group head–Legal, Adani Group, had said in a statement: “We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research.”