Adani vs Hindenburg: 32,000-word report left Rs 11.8 lakh crore scar on Indian stock market

NEW DELHI: A 32,000-word report by Hindenburg Research on Adani Group companies has left Dalal Street investors poorer by Rs 11.8 lakh crore despite the recovery seen in today's trading session. The collateral damage has been the worst in bank stocks.

The market capitalisation of all listed stocks on BSE has reduced to Rs 268.6 lakh crore in three sessions with the Sensex having lost over 1,400 points during the period as the selling pressure on Adani stocks had a domino effect on the rest of the stock market.

Before ending the day higher by 45 points, Nifty touched a 3-month low and even breached the 17,500 mark.

Investors have also been dumping bank stocks after the US research firm highlighted that many of the group’s companies aren’t generating free cash flows that can be used to repay loans.

Since the release of the report, Nifty Bank is down over 2,400 points with both private and PSU lenders facing the wrath. In the second half of the session, most bank stocks recovered losses.

In the last 3 days, Adani stocks have alone eroded Rs 5 lakh crore of their market capitalisation or one-fourth of the value. During the day, two Adani stocks - Adani Green Energy and Adani Transmission - hit fresh 52-week lows and nosedived up to 20%. Short sellers have been making a killing in most Adani stocks.

Adani Enterprises was the only one out of 10 Adani stocks that were trading in the green in the afternoon session.

While the company has made it clear that they are not going to change the timeline or price band of the Rs 20,000 crore FPO of Adani Enterprises which closes for subscription tomorrow, the issue was subscribed only 2% till 2 pm.

Claims and counter-claims
In a 413-page rebuttal to the 88 questions asked by the New York-based short-seller, the Adani Group has raised questions on the motivation behind the report and said it is case of unethical short selling by a foreign entity by publishing a report to manipulate and depress the price of stock, and create a false market.

This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India, Adani said.

In its reply to Adani's letter, Hindenburg said the explanations defy common sense. "In terms of substance, Adani’s ‘413 page’ response only included about 30 pages focused on issues related to our report. The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables," it said.

What should Adani stock investors do?
Although widely tracked by retail investors for the mind-boggling returns that the companies have given in the recent past, Adani stocks hardly find any coverage from major brokerage houses.

Investors with a longer-term horizon have started eyeing select Adani stocks in the downfall.

"If we have to look at some stock that can be looked at lower levels, then it would be Adani Ports. The zone of around Rs 570-580 would be the right zone to enter with a Rs 550 stop loss. Within the Adani group, Adani Ports seems to be the best available stock that could be bought at current levels," said Sudeep Shah of SBI Securities.

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