Bears likely to ease off ahead of Adani Q3 results this week

The duration and extent of Adani stocks’ recovery are unclear as investors absorb the fallout of AEL’s cancelled FPO (Photo: Bloomberg)
The duration and extent of Adani stocks’ recovery are unclear as investors absorb the fallout of AEL’s cancelled FPO (Photo: Bloomberg)

Summary

  • FM’s comments on financial stability and higher margins may dampen heavy punting
  • FM, RBI say bank exposures to Adani cos are within permitted limits

Friday’s recovery in front line Adani group stocks such as Adani Ports, Adani Enterprises and Ambuja Cements could continue on Monday, with regulators, banks, and the finance minister all trying to calm investor nerves even as more surveillance measures are put in place to curb excessive speculation. But experts said the duration and extent of the recovery are still up in the air amid a slew of Adani group earnings reports this week and as investors absorb the fallout of the cancelled 20,000 crore follow-on public offer (FPO) of group flagship Adani Enterprises, which could impact the conglomerate’s future fundraising prospects.

“Adani Ports, Ambuja, and ACC could witness some value buying given their steep price fall on the back of reassurance on market integrity by the finance minister and regulators like Reserve Bank of India and Sebi, while the other companies from the stable might experience reduced volatility, thanks to the higher margins having kicked in from Friday," said Rajesh Baheti, managing director, Crosseas Capital Services, one of the country’s largest day trading entities.

Comments by finance minister Nirmala Sitharaman on Friday, the first by a government functionary since the crisis erupted on 24 January, that Life Insurance Corp. of India and State Bank of India’s exposure to the Adani group was within permitted limits drove bears to cover their short positions in Adani Enterprises and Adani Ports, both Nifty 50 stocks.

Adani Ports recovered 22% from a 52-week low of 395.10 to close at 488.40, while Adani Enterprises recouped almost all of its 35% loss to a 52-week low of 1,017.45 apiece to close at 1,531, just 2% lower following Sitharaman’s comments, which came shortly after rating agency Fitch said there was no immediate impact of its ratings on Adani group companies and their securities in the wake of a US short-seller’s allegations of fraud and manipulation against the group.

The three stocks, in particular, have a relatively more diverse shareholding pattern than other Adani companies, where the promoter holding is above 70%. For instance, against promoter and promoter group holding of 72.63% in AEL and 74.19% in Adani Transmission, Adani Ports’ figure stands at 65.13% that of Ambuja Cements’ at 63.22%, and ACC’s is 56.69% as of December-end. Also, mutual funds hold between 4% and 8% of these three companies against just 1.19% in Adani Enterprises.

“For now, there is no problem on exposure by banks, but going forward, refinancing debt could be a challenge," said a senior bond dealer from a leading private bank. “Having said that, some buying is being witnessed in the dollar bonds of the group."

“To my mind, both the cement stocks, Adani Ports and Adani Enterprises, will see some more short covering in the early part of the week," said Rajesh Palviya, vice president (of derivatives and technicals) at Axis Securities. “It will be more like a breather until further clarity emerges, and retail should be very wary of jumping in. A rise in margins could curtail volatility in the other counters."

Short covering refers to bears closing out sell positions at higher levels, causing the stock to rise. This was evident in Adani Enterprises’ futures contract, which saw outstanding traders’ positions fall by 23%, enabling the cash stock to rise from a low of 1,017.45 to 1,531 at the close of trading.

Similarly, Adani Ports’ futures contract witnessed outstanding positions fall by 14% and Ambuja Cements by 6%, enabling a sharp recovery.

“Short covering could continue, but we are recommending that traders stay away from these counters, for now," said Siddarth Bhamre, executive vice president and research head at Religare Broking.

Only four out of 10 listed Adani group stocks are available for trading on the F&O segment—AEL, Adani Ports, ACC and Ambuja Cements. On the others, which have a low public float, traders initiated intraday short trades causing prices to more than halve since 24 January.

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