With most Adani Group shares locked in lower-circuit in early Monday morning trade based on news that accounts of three foreign portfolio investors, heavily invested into group companies, were frozen by the National Security Depository Limited, market experts advise caution that investors should not jump in now to buy at lower levels.
Investors should wait till the Securities and Exchange Board of India, the market regulator with whom the three foreign portfolio investorsare registered, gives a clean chit to them or the Adani Group management comes out with a clarification.
According to the National Security Depository Limited Website, the depository has frozen the accounts of Albula Investment Fund, Cresta Fund and APMS Investment Fund on or before May 31, as reported by The Economic Times.
The three FPIs reportedly bought shares worth Rs 43,500 crore (Rs 435 billion) in Adani Enterprises, Adani Green Energy, Adani Transmission and Adani Total Gas.
While Adani Trans, Adani Power and Adani Green continued to remain locked in lower circuit at the time of publishing this report, Adani Enterprises and Adani Ports after trading with fall of 14.5 per cent each saw some buying in the afternoon as they recovered from lows of Rs 1,201 and Rs 681.
Clarification: When and how soon
"While the Adani Group is not in question, people are suspecting something given the sharp rallies in these companies, and till the company clarifies I don't think the market will let go. Let the management clarify that there is no connection between the three FPIs whose accounts have been frozen and the promoter," says says Deven Choksey promoter and managing director, K R Choksey Shares and Securities Pvt Ltd.
"If this clarification comes, the markets will be at ease. Market is suspecting some kind of dealing between them and if that gets clarified I don't think there will be much problem going ahead. The sooner it (the clarification) comes the better," adds Choksey.
"Markets are not over-reacting to the news. End of the day not just the market, but Adani Group shares are also expensive. It was a matter of some news that could derail the rally. It is bit too early, but this could be one of the reasons," says independent market analyst Ambareesh Baliga.
"I think market participants are fearing what if there is an investigation and what if it point towards the fact that there is something wrong in the operations of these accounts. Unless there is some clarity on the ownership issues or these three (FPIs) get a clean chit there will be pressure on these stocks given the way they have moved up. We must know if there was genuine buying in these companies," says Baliga.
"The Adani Group will clarify only sometime after clarifications come out from SEBI and NSDL," says Kshitij Purohit, a market analyst with CapitalVia, a Sebi-registered stock advisory company.
The stunning rise and the fall today
For the record, stock prices of Adani Enterprises have jumped almost three times from Rs 490 on January 1 to Rs 1,717 on June 7 before they started correcting.
Adani Ports almost doubled from Rs 508 from the beginning of the year to Rs 901 on June 9 before the fall started.
Adani Power too jumped threefold from Rs 50 on January 1 to Rs 167 on June 9 when they started cooling off.
Adani Green fell from a high of Rs 1,080 on January 1 to a low of Rs 900 on January 13 before rallying to Rs 1,390 on May 25 when the share prices began to fall.
The shares of Adani Trans, which traded at Rs 440 a piece on January 1 rocketed to Rs 1645 on June 7.
Now, with the news on the FPI front these shares have corrected sharply clocking losses of anywhere between 5 and 15 per cent.
With Adani Green, Adani Power and Adani Trans stuck at the 5 per cent lower circuit there are no buyers in these stocks and investors who want to sell can't get out.
"Now, the problem is investors can't sell these stocks because there are no buyers," says Baliga.
"Markets have been overheated for quite a while now driven by sentiment and liquidity. Despite the second wave of COVID-19, most of institutions lowering India's GDP growth rate the markets were not reacting because of positive sentiments driven by liquidity," explains Baliga.
"Now, with news like this coming out it can puncture the liquidity (driven rally). I still think this is a good time to book profits and take some money off the table because when the markets are going down it is very difficult to sell. That is being witnessed in Adani Group shares today," cautions Baliga.
"The stock prices of all these companies had gone up significantly and even after today's fall they are still trading at expensive valuations. No questions asked on that front," adds Choksey.
"Those who had bought shares for trading purposes (as against investments) would be the first ones to sell the shares," he says.
"Retail investors should hold on to the companies because the fundamentals of these companies are strong. The business fundamentals of these companies are in no doubt at all, though, one may feel that their valuations are expensive," is Choksey's advice to investors.
"If the selling continues two Adani Enterprises and Adani Ports have still 20-25 per cent downside left in them given that they had shot up significantly since the beginning of this calendar year," says Purohit.
"Investors should avoid bottom-fishing in these shares right now. Let there be clarifications from the management and SEBI, let there be a clean-chit and then you will see these stocks coming back into the limelight," is what Purohit has to offer to investors in terms of his recommendation.