Adani stocks, bonds fall after report; volatility may continue

Adani Group stocks and bonds fell after global news reports alleged insiders invested in group shares in violation of regulatory norms on minimum public shareholding. The combined market capitalisation of 10 group companies fell by ₹35,210 crore, while Adani bond yields traded offshore rose as a risk off sentiment.

The share correction coincided with the monthly expiry of derivatives contracts. Analysts expect bulls to have rolled over fewer bets to the September expiry futures contracts in response to the latest round of allegations which Adani Group rejected as “recycled ” and an attempt to revive “meritless” Hindenburg report. The rollover report was awaited till the time of going to press.

The stocks which fell the most by market cap were flagship Adani Enterprises (AEL), Adani Green Energy and Adani Ports, which accounted for over three-fifths of the value erosion on Thursday. ACC was the only stock to end in the green. The group level loss of market cap was the steepest since the ₹54,413 crore fall on 23 August, a day before Sebi was to submit its report to Supreme Court.

“My guess is that longs would have liquidated some of their bullish positions rather than rolling them over to the September expiry,” said Rajesh Palviya, derivatives head at Axis Securities. “I expect the volatility to conti-nue until Supreme Court rules on further course of action after considering Sebi report.”

The apex court in May directed Sebi to probe allegations of corporate malfeasance levelled by US short seller Hindenburg Research against the Adani Group. The fallout from those allegations has caused the group market cap to fall to ₹10.8 trillion on 31 August from ₹19.2 trillion on 24 January when the Hindenburg report surfaced.

The latest rep-orts could “increase” the volatility on Adani share counters, according to Shyam Sekhar, founder of ithought, a Sebi-registered investment adviser.

The yields on the Adani Group’s overseas bonds rose after the news reports. The yield of the Adani Ports 4.2% bond maturing on 4 August 2027 rose by 2.9% intraday while that on the Adani Green Energy 4.37% bond maturing on 8 September 2024 surged by as much as 8.7% at the time of writing. Bond yields and prices move inversely.

Further, a Mint analysis of the National Stock Exchange’s securities lending and borrowing (SLB) segment shows that borrowing in shares of AEL rose prior to the Hindenburg report release. On 16 January, SLB volumes in AEL rose to 221,525 shares, on 18 January to 899,686 shares and on 19 January to 484,282 shares against the daily average of 93,303 shares transacted during January.

This happened also on BSE on the same dates.

Shares of 360 One, alleged by the OCCRP report to have structured a fund that invested in Adani group stocks, fell 3.6% to ₹487.35. “In neither of these two funds, the Adani group or any of the individuals mentioned in the article, are investors. These funds as on date have zero investments in any of the shares of the Adani Group. In the past among many other portfolio investments; the funds have had investments in shares of Adani Group companies; all of which were sold in 2018,” said 360 One in a filing to the exchanges.

Short selling refers to selling shares that one doesn’t own. It happens on a regulated segment on NSE and BSE where a borrower borrows the shares from a lender who has them in his or her demat account against payment of interest to the latter.

The aim is to sell these in the market and buy them back at a cheaper rate, making a profit in the bargain. This is then returned to the lender. The borrower aims to exploit mispricing of shares between the spot and futures segment of the exchanges or expects a correction in the share price.