Why Adani Stocks are Under Pressure

The Indian stock market has found itself once again in the eye of a financial tempest.

On Monday, the market's resilience was put to the test as the short-seller Hindenburg Research unleashed a second barrage of accusations against the Adani Group.

Like a ship weathering a turbulent sea, the market initially listed heavily, with shares of eight Adani group companies taking a severe beating.

The Adani Green Energy stock, in particular, was caught in the storm's crosshairs. Its value plummeted by a 7% intraday, but recovered the losses toward the end.

Adani Group Stocks Performance on 12 August 2024

Company	Change (%)
Adani Wilmar	-4.1
Adani Total Gas	-3.9
Adani Energy Solutions	-3.7
NDTV	-3.1
Adani Ports	-2.0
Adani Enterprises	-1.1
ACC	-0.9
Adani Power	-0.7

Source: Equitymaster

The overall impact was staggering, with investors bearing the brunt of a Rs 530 bn loss as the combined market capitalisation of the Adani empire contracted to a Rs 16.7 trillion.

While the stocks suffered a steep decline in the morning, they managed to recover some ground later in the trading session.

Read on to know about the latest chapter in the Adani-Hindenburg saga and the reason behind the decline in Adani stocks.

Adani-Hindenburg Saga 2.0

While the recent Hindenburg report does not present new allegations against the Adani Group, it claims that SEBI chief Madhabi Puri Buch and her husband, Dhaval Buch, had stakes in Bermuda and Mauritius-based offshore funds.

These funds were allegedly used by Vinod Adani, the brother of Gautam Adani, to amass and trade large positions in Adani group shares.

However, in a late-night press statement, Buch dismissed the report's claims as unfounded.

On Sunday, Buch issued a personal statement asserting that all necessary disclosure requirements had been meticulously followed and that the investments in the fund mentioned in the Hindenburg report were made privately in 2015, two years before her tenure at SEBI began.

The report has reignited concerns about SEBI's objectivity in handling the Adani matter, drawing political attention and prompting opposition leaders to demand Buch's resignation and a Joint Parliamentary Committee (JPC) probe into the Hindenburg report.

Also, the Adani group swiftly rejected these accusations, maintaining that its overseas holding structure is fully transparent.

The conglomerate's spokesperson described the allegations as a deliberate attempt to damage its reputation, emphasising that the Adani Group has no commercial ties with the individuals or entities mentioned.

Despite the renewed focus, Hindenburg's second report had a limited impact on the broader market.

Following the update the shares of Adani group companies took a hit.

Recap of Adani-Hindenburg 1.0: Crisis and Recovery

When US short-seller Hindenburg Research first targeted the Adani Group on 24 January 2023, accusing the conglomerate of orchestrating a massive corporate fraud involving accounting manipulation and stock price inflation, the group's stocks faced a severe downturn.

Investors suffered significant losses, and within five weeks, the market value of Adani Group companies plunged by about 65%, falling to Rs 6.7 tn.

This crisis also saw Gautam Adani, the group's chairman and then the world's second richest person, drop below the 25th spot on the global rich list.

Adani Enterprises was forced to cancel its US$ 2.5 billion (bn) follow-on public offering (FPO).

In the 18 months that followed, the Adani group gradually regained much of the value lost due to Hindenburg's allegations.

By the first week of June 2024, the combined market value of 10 Adani group companies had risen to Rs 19.4 tn, surpassing the Rs 19.2 tn level it held on 24 January 2023. This recovery process spanned over 500 days.

The Adani group received a major boost when the Supreme Court ruled out further investigations by the Securities and Exchange Board of India (SEBI).

In a detailed order issued on 3 January, the Supreme Court determined that reports from organisations like the Organized Crime and Corruption Reporting Project (OCCRP) and Hindenburg Research could not be treated as conclusive evidence.

Later, the Court also dismissed a petition seeking the formation of a Special Investigation Team (SIT) or a group of experts to investigate the Adani-Hindenburg controversy.

Conclusion

Looking ahead, the future of the Adani group appears promising with its ambitious expansion plans.

Adani Enterprises is preparing to launch a US$ 1 bn share sale by mid-September, after having previously shelved a record US$ 2.5 bn offering in response to the first set of Hindenburg allegations.

Recently, the Adani Group has ventured into shipbuilding at Mundra Port, a strategic move that aligns with India's broader maritime goals.

The Adani group, a diversified conglomerate with a core focus on port operations through Adani Ports, is embarking on an extensive expansion effort.

This includes a planned investment of US$ 90 bn over the next decade, which will greatly benefit its ports arm.

Additionally, the group's commitment to reducing the cost of green hydrogen reflects its dedication to large-scale sustainability efforts.

The group has set an ambitious target to achieve an EBITDA of Rs 900 bn within the next 2-3 years.

While the current issues may appear to be a temporary setback, thorough research is needed before making investment decisions.

For more on Adani's future in green hydrogen, airports, and data centres, check out our recent editorial Is Adani the New Reliance? Decoding the Rise of Adani Enterprises.

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

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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