Home / Markets / Stock Markets /  Bears used non-delivery cash trades to maul Adani bulls

The sharp plunge in many Adani group stocks on Friday baffled experts, given the shares available for public trading are low.

While listed firms, by the market regulator’s mandate, have to sell 25% of the company to the public, many of the shares of the Adani group are held by investors that rarely trade the stocks, reducing the so-called free float.

An analysis of the number of shares that investors have taken delivery of to the total traded volumes shows that much of the carnage in the wake of the Hindenburg report was caused by non-delivery-based transactions such as short selling that do not require the physical delivery of securities.

Trading volumes of stocks such as Adani Transmission, Ambuja Cements and Adani Ports rose to the highest in a year, while delivery as a percentage of the traded stocks was relatively below the annual average. Stocks of Adani Green Energy, ACC and Adani Enterprises also saw traded volumes hit three -five-month highs, with below-average delivery compared to the yearly average.

This shows that apart from derivative trades in four listed group entities—Adani Enterprises, Adani Ports, ACC and Ambuja Cements—significant intraday short selling took place.

This means traders took bearish bets on Friday and closed out the positions before market closing to avoid giving delivery.

The steep fall would otherwise not have been possible in stocks such as Adani Transmission, Adani Green, Adani Total Gas, Adani Ports, where retail and high-net-worth investors hold just 1-4% of the stocks.

NSE data show Friday’s delivery volume in Adani Transmission was just 31% of traded volume, the highest in the year at 2.53 million shares. The traded volume was three times that of the average annual 790,000 shares traded. The average annual delivery volume was 39%.

In the case of Adani Ports, the traded quantity was more than 10 times the annual average at 64 million shares, while delivery was 21% against the annual average of 24%.

Ambuja Cements saw traded volume of 11 times the yearly average at 91 million shares, while delivery as a percentage was just 25% against the yearly average of 43%.

Similarly, in Adani Green, traded volume at 5.84 million shares was three-and-a-half times the yearly average, while delivery was just 28% against the annual average of 36%. “Delivery volume as a percentage of traded volume was low in most of these counters, implying intraday squaring off," said Rajesh Palviya, derivatives and technical head at Axis Securities.

Alok Churiwala of Churiwala Securities agreed.

“Given the low free float, many bears took to the cash market, shorted and closed out positions, reflected in the relatively lower delivery percent," he said.

Palviya said continuing volatility could see a spike in the margin to trade or securities in the derivatives counter being banned, which means incremental positions can’t be taken, and only existing long or short positions can be squared off.

In most Adani stocks, the relatively high percentage of promoter and FPI holding leaves little room for shares to be exchanged when traded volumes spurt, as seen on Friday.

What to expect next:

Experts said that if heightened volatility persists in Adani Group stocks, excessive speculation can be curbed by:

1) Exchange increasing the margins to trade for traders taking intraday positions, making it costlier to punt

2) On derivatives, excessive build-up of positions can lead to the stock futures and options entering a security ban, meaning no fresh positions can be taken; only existing positions (long or short) can be squared off

3) Ambuja Cements is one stock in which fresh positions will not be allowed on the F&O segment of NSE on Monday as current client positions stand at 155.4 million shares against the marketwide position limit of 145.9 million shares

4) The stock counter exits the ban only when client positions reduce to 75-80% of the marketwide position limit, say brokers

5) Adani Ports’ active futures contract open interest—outstanding buy-sell—positions read with price indicate short build-up, that of Adani Enterprises Ltd is neutral, ACC and Ambuja (short build-up)

6) Any positive trigger could result in short covering resulting in price recovery in the stocks which have been mauled over the past two trading sessions

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