Has mega block deal in Adani firms roped in bulls back to market?

Adani stocks have been under pressure since January 24th after a Hindenburg report accused the conglomerate of stock manipulation, fraud, and tax evasion. While investigations are ongoing in Adani over these allegations, however, the mega block deal seems to have calmed the tide over Adani shares for now.

Last week, GQG Partners which is one of the leading US-based global equity investment boutiques, purchased equity shares of four Adani companies for a whopping ₹15,446 crore in a series of secondary block deals. Other foreign investors have also pumped funds into Adani shares. These four companies are Adani Enterprises, Adani Transmission, Adani Total Gas, and Adani Ports.

On Friday last week, on BSE, Adani Enterprises stock rose nearly 17%, and Adani Ports was up nearly 10%. While stocks like Adani Transmission, Adani Power, Adani Wilmar, Adani Green Energy, and Adani Total Gas hit 5% upper circuit. The NDTV share price soared nearly 5% as well. Meanwhile, ACC was up over 5% and Ambuja Cements surged nearly 6%.

Following the strong rally in Adani stocks, overall markets also saw the best single-day performance for the current year. On Friday, Sensex closed at 59,808.97 up by 899.62 points or 1.53%. While Nifty 50 ended at 17,594.35 higher by 272.45 points or 1.57%. During the trading session, both benchmarks clocked nearly 2% upside each.

Overall, Sensex has climbed 1.3% and the Nifty 50 soared nearly 0.9% between February 27 to March 3rd. Bank Nifty also jumped by 2.3% or 944.25 points. PSU banks saw the most buying after the block deals in Adani firms. Nifty PSU Bank rises over 326 points or nearly 8.95% in the week.

Between February 27 to March 3rd, Adani Enterprises stock gained nearly 44%, Adani Ports jumped over 20%, Adani Green Energy soared over 21.5%, Adani Total Gas jumped over 9%, Adani Power climbed nearly 18%, Adani Wilmar zoomed nearly 17% and Adani Transmission advanced nearly 10%. In cement business, Ambuja Cements stock jumped over 14%, and ACC up nearly 10%. In media business, NDTV rallied by at least 18.5% on BSE.

After markets made robust gains last week on Friday, Naveen Kulkarni, Chief Investment Officer, Axis Securities said, “After the near USD 2bn investment by GQG partners in Adani Group, the stock market has heaved a sigh of relief, creating a kind of floor for Adani group stocks since a Marquee investor has invested in them at these prices.”

Kulkarni believes that “promoters can use the money raised through the transaction to infuse capital in any group company requiring the funds through warrants, rights issues, or any other instrument.”

According to him, this development will also lead to better sentiments for the market and increase retail participation, which was down due to uncertainty.

He further said, “The investment also leads to a belief that the Adani group stocks have stabilized and can raise capital if they want at current prices.”

He believes this development in Adani firms should support the banks, especially PSU Banks, which were hammered earlier, despite good performance due to fear of their exposure to the Adani group.

Some of the banks that declared their exposure in Adani companies after the Hindenburg report, the majority of them were from PSU banks. These banks were also under pressure post the short seller’s allegations against the Adani Group.

In February, SBI stated that they have exposure of ₹27,000 crore in Adani Group which is less than 1% of their total lending book. While Bank of Baroda had revealed that their exposure does not fall under the top 10 of the exposures in Adani, and also stated that around 30% of the bank’s exposure is backed by joint ventures with PSU Companies. Further, PNB had mentioned that it has approximately ₹7,000 crore exposure in Adani, of which ₹6,300 crore was funded exposure. Also, PNB has around ₹2,500 crore exposure in the group’s airports business.

While Axis Bank had said that its exposure stood at 0.94% of its net advances in Adani Group. Further, the bank revealed that the fund-based exposure was 0.29% and non-fund-based outstanding loan exposure was 0.58%.

Also, IndusInd Bank’s exposure in Adani came to around 0.49% of its total book. Further, the largest life insurer in India, LIC also has some exposure to Adani but it is less than 1% of its total book. LIC said, it has ₹35,917 crore under equity and debt at the end of December 2022.

Even DBS Group Holdings revealed they have somewhat $1.3 billion ($976 million) exposure to Adani firms — of which — $1 billion is from a cement business acquisition while $300 million is in other Adani firms. It revealed they are not concerned about this exposure in Gautam Adani’s firm.

Major rating agencies such as Fitch and Moody’s have said earlier in February that Indian banks’ exposure in crises-laden Adani is not sufficient to give a substantial risk to these lenders’ credit profiles. RBI deputy governor Mahesh Kumar Jain also said in a press conference during the month that domestic banks’ exposure in Adani is not very significant.

Has the mega block deal in Adani firms brought bulls back to market?

Kulkarni said, “We expect the markets to have a short-term bounce back due to increased optimism, but are still concerned about global interest rates and higher valuations, which can lead to increased medium-term volatility.”

He added, “We advise investors to maintain investment discipline and keep investing regularly in equities for long-term wealth creation, especially if the markets are volatile in the short to medium term.”

Last week, Nirav Karkera, Head of Research, Fisdom told Mint that the recent spurt in Adani stocks needs to sustain for longer before one can distinctly recognize it as either entering a new range, the beginning of a fresh rally, or at least not simply a dead-cat bounce.

Karkera added, “the stocks still remain highly sensitive to reported developments. Some spurt has been visible on a couple of counters owing to block purchases, but this may not really be an indicator of anything more than the buying entity’s conviction in the company’s growth prospects at the moment.”

GQG Partners who made one of the biggest buying through block deals said, it believes in Adani’s long-term growth prospects.

One of the major reasons behind investment in Adani firms, as per Rajiv Jain, Chairman and CIO of GQG Partners, would be that these companies “own and operate some of the largest and most important infrastructure assets throughout India and around the world.”

Rajiv said, “We believe that the long-term growth prospects for these companies are substantial, and we are pleased to be investing in companies that will help advance India’s economy and energy infrastructure, including their energy transition over the long run.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.