There has been a bloodbath in the markets today, especially concerning Adani Group stocks. The reason behind this sharp decline is an indictment in the US courts against Mr. Adani and his group, along with several others. They have been accused of paying bribes to secure power and energy contracts across multiple states, including Andhra Pradesh, from 2020 to 2022. This has caused a significant scare in the markets. In response, the company has come out stating that these allegations are baseless, and they will fight the charges in court.
Interestingly, all of these states involved were not governed by the ruling party. If the allegations are true, it raises questions about the opposition-led states, which may have benefited from these alleged corrupt practices while making noise on the streets. In any case, the news has left many investors in a state of shock today
Where is the market headed?
Market Overview
The markets have shown resilience despite the chaos. The Nifty Index dipped below its support level but found solid support at 23,300. It then recovered to 23,563, making a 90-point recovery during the day. However, it still closed at a five-month low, down by 0.72%. Despite this, the market is now extremely oversold, and a bounce towards the average could happen anytime.
Nifty Next 50
The Nifty Next 50 index, where Adani stocks are more concentrated, lost more ground. It recovered from 66,000 to 66,700 but still closed around 1.5% lower, indicating significant damage.
Nifty Mid and Small Cap
The Nifty Midcaps had a more moderate decline, closing 0.38% lower, while the Small Caps fell by 0.58%, staying within the range of the last four sessions’ volatility.
Nifty Bank Overview
The Nifty Bank Index saw a strong recovery, with State Bank of India (SBI) bouncing back from a near 5% loss. There was initial concern that the fallout could spread to public sector banks, given their exposure to Adani Group projects, but the market seems to be stabilizing. While the market has come off its highs, it doesn’t appear to be on weak footing just yet. The Bank Nifty closed down by only 0.5%.
Advanced Declined Ratio Trends
In terms of market breadth, there were 356 decliners compared to 141 advancers, with declines obviously outnumbering advances. Foreign Institutional Investors (FII) have been selling, with a net outflow of 3,400 crores in the previous session, although this has decreased over the past 10 days and seems to be picking up again. Domestic Institutional Investors (DII), on the other hand, have been consistently buying.
Nifty Heatmap
The heatmap shows a sea of red, with major stocks like State Bank of India, Reliance, ITC, NTPC, and Adani Enterprises losing 2-3% or more. Adani Ports was down 13.57%, and other Adani stocks like Adani Green, Adani Power, and Adani Total Gas faced major declines. Some recovery was seen in stocks like PNB, Bank of Baroda, Zomato, and Ambuja Cement, but they still closed significantly lower.
Sectoral Overview
Looking at the sector performance, PSU banks took the biggest hit, down 2.7%, followed by metals (-2.3%), energy (-2.2%), and commodities (-2%). Public sector enterprises also fell 1.3%, and FMCG surprisingly continued to decline, down by 1.2%. Autos, infrastructure, and consumption sectors saw more moderate declines, around 0.9%, in line with the overall market. Real estate, however, showed strength, picking up 0.9% in the second half of the day, suggesting it may have reached a short-term bottom. Private banks also held up relatively well, with a small gain of 0.1%.
In terms of performance over the past month, energy stocks have been the worst hit, down 12.7%. Over the past three months, energy remains the worst performer, down 17.9%.
Sectors of the Day
Nifty Realty Index
Real estate, however, has come back slightly, with a 0.93% gain. Some individual stocks in this sector, like Prestige and Phoenix Mills, also posted gains.
Stock of the Day
Vijaya Diagnostic Cen
Vijaya Diagnostics made a new high today, up by 7.41%, showcasing relative strength in a market that has been broadly negative. This stock has surged from nearly 300 to nearly 1200 rupees in the last two years.
Story of the Day : ADANI Bloodbath
Regarding the Adani Group’s troubles, US prosecutors have alleged that $250 million in bribes were paid to secure favorable terms on solar power contracts, including deals with Adani Green and Azure Power Global. The case has had a significant impact on Adani stocks. Despite some recoveries in stocks like NDTV, Ambuja Cement, and Adani Power, most stocks in the group closed near their daily lows. The news has triggered large sell-offs across the group, with notable cuts in Adani Green (down 19%), Adani Power (down 9%), and Adani Total Gas (down 20%).
The US Attorney’s office in New York has indicted eight officials, including Gautam Adani, over the alleged bribery scheme, which took place between 2020 and 2022. The timing of this news is particularly suspicious as it coincides with Adani’s fundraising efforts. It raises questions about whether there’s a pattern of negative events surrounding the group whenever it tries to raise funds, such as the Hindenburg report last year. Though the case was filed a year ago, it has only now come to the forefront, adding to the timing’s intrigue.
Adani Group has responded to the charges, calling them baseless. They have also scrapped their offering in light of the news. GQG Partners, a major investor in Adani, has stated they will review the situation, as the case may pose reputational risks for foreign fundraising efforts. If the allegations are proven true, it could create significant fundraising challenges for the group and may delay several infrastructure projects, affecting India’s growth story. However, many of these issues might not disrupt the long-term growth trajectory of India. If the accusations are true, it would still take time for the group to recover.
Regarding the stock performance, Adani stocks have been through significant volatility since the Hindenburg report in February 2023. Stocks like Adani Enterprises have fallen 47% from their peak, though still up by 19 times from COVID lows. Similarly, Adani Ports, which recovered from the Hindenburg crash, is now down by 32% from its recent peak. Adani Green Energy, which had previously fully recovered from the Hindenburg fall, is now down 62% from its peak but still up 10x from COVID bottoms. Other stocks like Adani Power have also seen significant swings but remain up 20x from their lows.
Some of the weakest performers are Adani Energy Solutions and Adani Total Gas, both down 83% and 85% respectively from their peaks, with little recovery in sight. Adani Wilmar has also not recovered and is now at an all-time low, down 66% from its peak.
Overall, all Adani Group stocks are down 50-80% from their highs, and momentum strategies are unlikely to buy into these stocks at this point. The previous momentum portfolios, which had seen significant gains from Adani stocks during their rise, have since stayed away due to the lack of momentum in the group’s stocks. This highlights the advantage of momentum strategies, which focus on selecting stocks with sustained strength, avoiding stocks that are prone to sharp declines.
As for the future of Adani stocks, whether they will recover remains uncertain. It’s important not to try to catch falling knives in such volatile situations. If you are considering buying falling stocks, it’s recommended to allow them two or three days to settle and look for a confirmation of upward movement before entering. Safety comes from waiting for the market to tell you when the stock is viable again.
