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Informist, Thursday, Nov. 21, 2024

By Anjana Therese Antony

MUMBAI – The bribery allegations against the Adani group chairman and other senior officials came as a shock to investors in India, adding to the current woes of the market such as continuing foreign portfolio fund outflows, slowdown in earnings growth, and expensive valuations. The benchmark indices hit their five-month lows, erasing all the gains made Tuesday.

Adani group stocks together lost INR 2.2 trillion in market capitalisation Thursday after the US Justice Department issued an arrest warrant against Gautam Adani and his nephew Sagar Adani over an alleged multi-billion-dollar bribery and fraud scheme involving his solar projects in India. There are concerns now about whether the group companies will be able to raise funds abroad and whether its various ongoing projects will slow down. 

Though the conglomerate denied the allegations and called them "baseless", its stocks remained in the red zone. Moody's Ratings said the bribery charges are credit-negative for the group's companies. "Our main focus when assessing Adani Group is on the ability of the group’s companies to access capital to meet their liquidity requirements and on its governance practices," the agency said in a note.

US prosecutors Wednesday said Adani and seven others, including his nephew, agreed to pay about $265 million in bribes to Indian government officials to receive contracts expected to yield $2 billion of profit over 20 years, Reuters reported. 

The fall in the conglomerate's Nifty 50 constituents, Adani Enterprises and Adani Ports and Special Economic Zone, together contributed to a fall of nearly 0.3% in the 50-stock benchmark index, which closed 0.7% lower at 23349.90 points. The BSE Sensex ended 0.5% lower at 77155.79 points. The near-term support for the 50-stock index is pegged at 23100-23000 points and resistance at 23500-23600 points.

The benchmark indices have fallen nearly 10% since Oct. 1, primarily on offloading of shares by foreign investors. Foreign investors net sold shares worth nearly $11 billion in October and $2.56 billion in November till Monday. The outflow in October was the highest in a month. Adding to the woes is the possibility of a slowing of rate cuts in the US following the US Federal Reserve chair's comment that the apex bank is in no hurry to reduce rates. This came as a surprise to market participants who were expecting a 25-basis-point cut in key rates in December.

With respect to the earnings of Indian companies, Goldman Sachs said the downgrade cycle is still not over. The foreign brokerage's three-month target for the Nifty 50 is 24000 points, a 2.7% upside from current levels. It also has an 'overweight' view on sectors such as information technology, automobiles, telecommunications, and real estate.

Coming back to Adani stocks, Adani Enterprises ended 22.6% lower at INR 2,183.65 on the National Stock Exchange, losing INR 736.19 billion in market capitalisation. The stock hit its lowest point of the year at INR 2,155.05 intraday. Adani Ports closed nearly 14% lower at INR 1,114.65, losing INR 378.02 billion in market capitalisation. Shares of other companies in the group such as Adani Power, Adani Wilmar, Adani Total Gas, Adani Green Energy, and Adani Energy Solutions ended 9-20% lower. The sharp fall in Adani group stocks comes nearly two years after US-based short-seller Hindenburg Research's allegations of stock market manipulation and accounting fraud by the conglomerate had first resulted in the stocks tanking.

Adani Green closed nearly 19% lower at INR 1,145.70. The company said its subsidiaries have decided not to proceed with dollar-denominated bond offerings following the allegations. It had raised $600 million through a 20-year bond Wednesday and had priced the bond at 7.45%. The company lost INR 422.94 billion in market capitalisation.

A ripple effect of the fall in Adani stocks was seen in shares of some banks and financial services companies with substantial exposure to the group companies. Shares of State Bank of India ended 2.8% lower at INR 780.75. Analysts said the bank has given about INR 270 billion in loans to Adani companies. Other banks having major exposure to the conglomerate include Punjab National Bank and Bank of Baroda, whose shares closed lower by 4.5% and 3.7%, respectively. The Nifty PSU Bank was the worst-hit sectoral index and closed 2.7% lower at 6318.90 points, with 11 of its 12 constituents in the red.

Shares of REC ended the session nearly 5% lower at INR 490.95 on concerns about the company's INR 170-180 billion exposure to Adani group companies. 

Among other stocks, Dr. Reddy's Laboratories closed 1.5% lower at INR 1,195.35 after falling 3.4% intraday. The company said it got seven observations from the US Food and Drug Administration for its manufacturing facility in Bollaram, Hyderabad, Telangana.

Britannia Industries closed 1.8% lower at INR 4803.35 after the company received a notice from the Food Safety and Standards Authority of India regarding the use of a preservative exceeding the prescribed limits. The stock hit a six-month low of INR 4,746.90 on the NSE during the day. 

Indian Hotels ended 4.4% higher after hitting a record high of INR 796.25 during the day. Nirmal Bang Institutional Equities raised the target price of the stock to INR 860 and retained its 'buy' rating. This follows the company's decision to raise its return on invested capital to 20% by financial year 2029-30 (Apr-Mar) from 15% in FY24.

* Of the Nifty 50 stocks, 15 rose and 35 fell

* Of the Sensex stocks, 11 rose and 19 fell

* On the NSE, 827 stocks rose, 1,991 fell, and 70 were unchanged

* On the BSE, 1,237 stocks rose, 2,736 fell, and 92 were unchanged

* Nifty PSU Bank: down 2.7%; Nifty Media: down 2.4%; Nifty Realty: up 0.93%

BSE                                               NSE

Sensex: 77155.79, down 422.59 points or 0.54%     Nifty 50: 23349.90, down 168.60 points or 0.72%

End

US$1 = INR 84.49

Edited by Rajeev Pai

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