Adani stocks, overseas bonds battered by rout

Adani Group's offshore bonds have dropped 1-2 points following the Modi government's failure to secure a resounding victory, as predicted by exit polls. Adani Green's recently issued $409 million 6.7% bond was down to 93/94 from 95/96 and Adani Ports and SEZ's $750 million 4.375% bond due 2029 fell to 88/89 from 90.

The political development led to a sharp decline in Adani Group companies' stock prices as well, some of which fell 10-20% due to the poor performance of the BJP. The alliance led by Prime Minister Narendra Modi fell short of the landslide victory that was anticipated.

Going forward, borrowing costs for the Adani group companies are likely to see spreads increasing over peers as investors add risk premium of a weaker Modi government.

While Adani Group bonds fell by 25 basis points, the investment-grade bonds corrected by 3 to 4 basis points due to the election impact, even though US yields remained stable.

Bond traders predict further corrections in Adani bonds over the coming days. "I don't think that anyone is going to punt on Adani so soon," said a bond trader. "But otherwise, broadly, most of the other bonds will get governed by what happens in the international market and Adani will underperform the overall dollar bond market."

Over the past 3-4 months, Indian dollar bonds have outperformed global bonds, with credit spreads tightening due to a stable and optimistic outlook for India. However, the recent political uncertainty is expected to cause underperformance in Indian bonds.

"While the rating outlook is not going to change now, the overall stability and euphoria around India will take a back seat for some time," said another bond trader.

Adani Group stocks, including Adani Enterprises and Adani Ports, were among the top Nifty 50 losers.