Why Adani Group Stocks Are Rising

Adani group stocks have recently experienced a remarkable breakthrough, hitting upper circuits over the past three days.

Adani group stocks continued dazzling for the third straight session on Tuesday, with most of them hitting their upper circuit levels, as sentiment improved about the group.

The listed group's stocks have added roughly US$ 22 billion (bn) in market capitalisation in the past three trading sessions. Six out of ten Adani group stocks hit their upper circuits on 23 May 2023, with Adani Enterprises gaining the most.

The flagship company of the ports-to-power conglomerate, Adani Enterprises, led the gains on the Nifty50, outperforming the constituent stocks and was the top gainer on the index. The stock has soared 44% in the past three sessions.

Here how shares of Adani Group have performed between 19-23 May 2023.

Adani Group Stocks- 3 Days Performance

Company	Change (%)
Adani Enterprises	44%
Adani Wilmar	29%
Adani Ports & SEZ	18%
Adani Green Energy	16%
Adani Power	15%
Adani Transmission	15%
Adani Total Gas	14%
NDTV	13%
Ambuja Cement	8%
ACC	6%

Source: Equitymaster

This surge in Adani group stocks marks is significant as it's the biggest rise since the US short-seller Hindenburg Research's report in January.

As a result, the combined market capitalisation of the Adani conglomerate crossed Rs 11 trillion (tn) on Tuesday. At its peak during the day, the group's overall market capitalisation stood at Rs 11.06 tn.

#1 Supreme Court Panel report

The rally in Adani group stocks can be attributed to the positive outcome of the Supreme Court-appointed expert panel's investigation into the Hindenburg allegations.

The report, unveiled on Friday, offered regulatory respite by affirming the absence of substantiated evidence about artificial trading or wash trades identified by the market regulator. This confirmation was for the period when Adani group stocks encountered a notable upswing in their valuation.

However, the panel did find evidence of a buildup in short positions on Adani group stocks before the publication of the allegations made by the US-based short seller. Traders were able to profit from these positions by closing them after the stock prices crashed following the allegations.

In addition, the report addressed concerns regarding the compliance of 13 overseas entities, including 12 foreign portfolio investors, by disclosing their beneficial owners. The market regulator has been investigating the ownership of these entities since October 2020 due to their opaque structures and unclear chain of ownership.

However, market regulators faced challenges in obtaining complete information about the owners of every piece of economic interest in these foreign portfolio investors, leading to lingering suspicions.

As a result, the committee concluded that it could not definitively determine whether there were regulatory failures in light of the circumstances.

The release of the Supreme Court-appointed expert panel's report regarding regulatory failures, coupled with the positive findings regarding market manipulation, provided clarity and reassurance to the market, leading to a rally in Adani group stocks.

It's worth noting that the Supreme Court had previously granted the market regulator a three-month extension to conclude its investigation in the case, and the expert panel's report offered an overall assessment of the issues surrounding the allegations against the Adani Group.

#2 Monetisation of non-core assets

According to media reports on Monday, the Adani Group is exploring the possibility of monetising certain real estate assets deemed non-core to its operations.

Initially, the group identified specific assets for potential sale, but now it is expanding the list to generate funds for its new real estate ventures.

One of the properties being targeted for sale is Inspire BKC, a commercial real estate project situated on the periphery of Mumbai's Bandra-Kurla Complex (BKC), a prime business district housing numerous multinational corporations and Indian corporate giants.

The Adani Group has initiated discussions with potential buyers, including Brookfield Asset Management, in search of a non-binding term sheet. The preliminary valuation stands at an estimated Rs 6.5 billion (bn). Inspire BKC boasts an impressive leasable area of 800,000 sq. ft.

Additionally, the Adani Group is also believed to have identified additional real estate holdings within its group companies, ACC and Ambuja Cements, which it acquired from Holcim last year. These newly identified assets are also being considered for potential monetisation, which includes around 16 acres owned by ACC in Thane near Mumbai.

The Adani Group's decision to monetise its non-core real estate assets aligns with its strategic realignment plan. The funds generated will be directed towards fulfilling the investment requirements of the group's ongoing real estate projects. This further boosted investor sentiment, thereby driving the rally.

What next?

Moving forward, Adani Group stands on firm footing on the back of deleveraging actions undertaken over the last few months.

Further, the group plans to venture into developing commercial and real estate projects in highly sought-after markets across western India. Additionally, the group has secured the redevelopment bid for Dharavi with an initial investment of approximately Rs 50.7 bn.

Also, Adani Enterprises has revived its capex plan after a four-month pause, with a planned initial investment of US$ 1.5 bn to kickstart its new businesses.

The company aims to channel fresh investments into areas such as solar module manufacturing, green hydrogen, Navi Mumbai Airport, and data centers through its subsidiary Adani ConneX. Adani New Industries also has ambitious plans to invest US$ 50 bn by 2030 to establish a robust green hydrogen ecosystem in India.

For more, you could quickly refer to both fundamentals and valuations of Adani group stocks on Equitymaster's Indian stock screener.

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