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The rout in Adani group stocks, triggered by a scathing report from US-based investment research firm Hindenburg Research, spooked the Indian market on Friday amid fears of contagion.
The Nifty50 index fell 288 points, or 1.61 per cent — the most since December 23 — to settle at 17,604, while the Sensex dropped 874 points, or 1.5 per cent, to end the session at 59,331, its lowest close since October 21. The Sensex had plunged as much as 2 per cent, or 1,230 points, in intra-day trade.
The Bank Nifty index fell 3.13 per cent, with shares of SBI and ICICI Bank dropping over 4 per cent each. Shares of Life Insurance Corporation of India (LIC), which has significant equity exposure to the Adani group, fell 3.5 per cent. India VIX, a gauge for measuring market volatility, rose 18 per cent on Friday.
Foreign Portfolio Investors (FPI) sold shares worth Rs 5,978 crore on Friday, according to provisional data from the exchanges. Shares of Adani’s companies have lost about $50 billion (Rs 4.2 trillion) in market value in two sessions.
The Nifty PSU Bank index fell 5.4 per cent on Friday. “PSU banks do have material exposure (30 per cent of the group debt) but this debt has not increased in the past three years,” a note by CLSA said.
The 106-page report released by Hindenburg on Wednesday has accused firms run by India’s richest man Gautam Adani of brazen stock manipulation, accounting fraud, and use of extreme leverage, which spells danger for its creditors.
The Adani group has termed the allegations as “baseless” and “malicious” and is even considering legal action.
“The questions raised are not on the business of the company but on other things like corporate governance. Today’s fall is a result of a short position created by some global trader who has chosen an instrument which is not listed in the Indian market. This is a dangerous situation and has led to panic among investors. Hindenburg Research’s model has to do with shorting of stocks. They have always shorted stocks with high valuations. The only concern is they are shorting Indian stocks from outside the country,” said Deven Choksey, founder and promoter, KRChoksey Holding.
Hindenburg Research claimed that its findings were a result of a two-year investigation. The report said seven key listed companies of the Adani group had as much as 85 per cent downside purely on a fundamental basis owing to sky-high valuations.
Hindenburg also alleged that key listed Adani companies had taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing.
Close to Rs 11 trillion of India’s market cap has eroded in just two trading sessions, with Adani group itself accounting for 38 per cent of this fall. Gautam Adani’s net worth has now slipped below $100 billion, and his ranking slipped three notches, according to a report. Last year, Adani had climbed to second position on the global rich list.
In the past, concerns about the Adani group’s leverage were raised by CreditSights, a fixed-income research firm owned by the Fitch group. The CreditSights report said the Adani group “deeply over-leveraged” with stretched balance sheets.
The Nifty was the worst-performing Asian equity benchmark on Friday. Concerns ahead of the Union Budget and the Federal Reserve’s monetary policy announcement also worried investors.
“The corporate houses with heavy leverage and expensive valuations were hit the most during this sell-off. Some part of India’s underperformance vis-à-vis global markets of late can be explained by the huge outperformance by India last year, and thus markets are attempting to revert to the mean,” said Nishit Master, portfolio manager, Axis Securities.
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