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Informist, Thursday, Nov. 21, 2024

By Apoorva Choubey 

MUMBAI – Market participants piled up short bets in the futures of Adani Ports and Special Economic Zone, and Adani Enterprises, while selling their call options, which indicates that the sell-off in these Adani group stocks is seen persisting over the next few days. A massive rout was seen in all listed Adani group stocks Thursday after news emerged that Chairperson Gautam Adani was being indicted by a district court in the US over an alleged multi-billion dollar bribery and fraud scheme involving his solar projects in India.

The US prosecutors Wednesday said Adani and seven others, including his nephew Sagar Adani, 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. According to court records quoted, a judge has issued arrest warrants against those charged, including Gautam Adani and Sagar Adani.

Short bets were added in Adani Enterprises, as evident from the fact that open interest in the November futures of the stock jumped 19% to 21.1 million, while the shares ended a whopping 23% lower at INR 2,183.65 in the cash market. In the November futures of Adani Ports and Special Economic Zone too, bearish positioning was seen, as reflected in the 5% rise in open interest at 26.8 million, on a day that the stock crashed 14% in the cash market to end at INR 1,114.65.  

Call options of Adani Enterprises were sold across strikes, while put options were bought. The INR 2,100 strike price put option now holds the maximum open interest among out-of-the-money strikes and saw aggressive buying today, while the INR 2,500 strike price call option was the most actively sold and has a high number of open positions.  

Market participants added short bets in most call options of Adani Ports as well, with put options being bought. The INR 1,080 strike price has the highest open interest among put options. For both Adani Ports and Adani Enterprises, the fall in the shares was so steep that all previous open interest bases, which also serve as support levels, were breached. Hence, nearly all the open positions that currently exist in their out-of-the-money put options were created Thursday. 

Adani group stocks together lost INR 2.2 trillion in market capitalisation Thursday, as investors now fear the group may find it difficult to raise funds overseas, at a time when its liabilities remain high, and this fraud allegation could mean a slowdown in the company's ongoing projects and business. Moody's Ratings said the bribery charges were 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.

The Adani group fraud allegations have brought to the fore multiple uncertainties for the Indian equity market. It could exacerbate the ongoing sell-off in domestic equities by foreign portfolio investors who have high corporate governance standards, while also impacting Indian banks who have lent billions to the conglomerate, according to the head of equity dealing at a local brokerage house. Moreover, such fraud and criminal allegations in the US aren't an isolated event for the Adani Group, he added, alluding to the claims made by Hindenburg Research against Adani group last year. 

Thus, traders continued to add bearish positions to the Nifty 50's monthly options, as well as its futures. The outlook for risky assets such as emerging market equities remains bleak in the near term, given the backdrop of prevalent geopolitical tensions, global macroeconomic issues and slowdown in corporate profit growth. 

The rise in the dollar and US treasury yields, along with trade uncertainties, are adding to the pessimism, said analysts. Moreover, US president-elect Donald Trump's aggressive trade policies--while good for American corporations--could mean uncertainty for other countries and drive global inflation higher, investors fear, at a time when the US Federal Reserve has made it clear that it is in no hurry to cut interest rates. 

On Thursday, the Nifty 50 closed at 23349.90 points, down 0.7% or 168.60 points. It has lost 6% in the last one month, largely on account of a massive sell-off by foreign investors.

Out-of-the-money call options of the benchmark were sold across strikes, with higher volumes than put options, suggesting that the Nifty 50 is not seen recovering during the November derivatives series. The 24000 and the 23800 strike price call options were the most actively sold, with high volumes. They also hold among the maximum open interest, and saw premiums tank 68% and 61%, respectively. 

In the futures market, traders unwound long positions and added short bets in the November series of the index. Open interest in the November futures was flat at 11.5 million. 

--Nifty 50 Nov closed at 23350.85, down 183.95 points; 0.95-point premium to spot index

--Nifty 50 Dec closed at 23502.00, down 184.05 points; 152.10-point premium to spot index

--Nifty 50 Jan closed at 23668.60, down 176.25 points; 318.70-point premium to spot index

Adani Enterprises, State Bank of India, HDFC Bank, Reliance Industries, Adani Ports and Special Economic Zone, ICICI Bank, Power Finance Corp, REC, Ambuja Cements, National Aluminium Co, Bank of Baroda, Axis Bank, Indian Hotels Co and Bajaj Finance were the most actively traded contracts.  End

Edited by Avishek Dutta

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