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Adani Group stocks continued to face an unrelenting sell-off, losing a staggering $111 billion in shareholder wealth in six trading days since the release of a scathing report by a US short seller as investors fled the stocks and bearish bets mounted.

Among group stocks, Adani Total Gas, Adani Enterprises, Adani Green Energy and Adani Transmission were the biggest losers since the 24 January release of the Hindenburg Research report alleging accounting fraud and stock manipulation.

Graphic:  Mint
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Graphic: Mint

Adani Enterprises, a member of the Nifty index, plunged 26.5% to 1,564.7 on Thursday, a day after the company withdrew its 20,000 crore follow-on public offering (FPO). In response, the stock tanked to a fresh 52-week low of 1,513.90, well below half the floor price of the now withdrawn issue.

Despite the bloodbath, a few market veterans expect buying to emerge at some stage in a few of the more widely held group stocks.

“Given the loss of shareholder value, the next three days will be crucial to my mind," said the chief executive of a Mumbai-based brokerage. “There is no real selling by any shareholder in any group companies, and concerns seem to be a bit overblown, given that the markets have remained stable post the budget."

Huge shorts have been built up in group stocks, with Adani Enterprises’ options pricing in a 43% movement on either side from 1,600 in the next three weeks.

A senior executive at a leading mutual fund said that predicting the “course of the fallout" was tough as the full magnitude of the crisis is still “unravelling."

While Adani Enterprises and Adani Ports are Nifty stocks, ACC and Ambuja Cements have more diversified public shareholding, along with Adani Ports.

The market cap erosion since 24 January of ACC, Ambuja and Adani Ports is relatively modest at 1-7.3% compared to the share of Adani Total Gas and Adani Enterprises at 24.4-28%.

This is the second day in a row that the Adani Enterprises stock has shed more than 26%, prompting the exchange to increase the trading margin to 40% or one-and-a-half times the existing margins on the stock under the so-called additional surveillance measure (ASM) short-term framework stage 1. Adani Ports and Ambuja Cement have also been put under the same framework by NSE. On the other hand, Adani Transmission and Adani Total Gas have been put under the same framework by BSE. The Adani Power stock has seen its margin hiked to 100%.

“The increase in margins under ASM is undertaken to curb excessive speculation in stocks as it reduces the leverage," said Rajesh Palviya, vice-president at Axis Securities.

Furthermore, Adani Ports has been banned for trading in the futures and options segment.

The ban happens when the outstanding client positions on the stock derivatives exceed a threshold set by the exchange.

During the ban, a trader can’t take incremental positions. Only existing buy or sell positions can be closed out

Most of the Adani Group stocks, barring ACC, Ambuja Cements and Adani Ports, have a relatively low free float.

As relatively fewer shares are available to the public, many speculators in stocks such as Adani Enterprises, Adani Green and Adani Transmission are initiating intraday trades, which involves squaring off their positions before the market closing. But they have to put up a margin to trade.

A few days ago, this was 28% for the cash market and has now been hiked to 40%. This reduces the leverage for a day trader to 2.5 times from 3.57 times.

The ASM framework is a consultative process between Sebi and the exchanges to enhance market integrity and safeguard the interest of investors, especially during times of unprecedented volatility, as seen in the group stocks.

In the event of further volatility in stocks under short-term ASM Stage 1, the stock will be shifted to stage 2, where the margin will be raised to 80% or 2.5 times the present margin, whichever is higher.

Just last week, the exchanges halved the price band to 10% for Adani Transmission, Adani Green and Adani Total Gas to prevent excessive volatility.

The top three stocks in terms of traded value were Adani Enterprises, Adani Ports and Ambuja Cements, which together accounted for a fifth of NSE’s turnover of 68,414 crore.

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