The Indian stock market has recently experienced significant volatility. Particularly, share price of the Adani Group companies have been more volatile. Today was particularly, a tumultuous day for these shares. An upheaval for these shares comes in the wake of serious allegations (in the US) of financial misconduct against its chairman, Gautam Adani. News of the allegation lead to a sharp decline in stock prices across several of the group’s companies. Here’s an examination of the events causing this market turbulence:
The turbulence in the Indian stock market has notably impacted the Adani Group’s portfolio. Adani Enterprises (AEL) is the conglomerate’s flagship company. It has seen its stock price tumble from the peak. This stock has a broad exposure in sectors like energy, ports, and logistics.
Similarly, Adani Green Energy (AGEL) is focused on renewable energy. It has also not been immune to the downturn. This share has also taken a significant hit in the recent price correction. Especially after the spotlight turned on it due to the alleged financial allegations on Gautam Adani.
The decline has also affected other key players within the group. Let’s take a look at the price action on top Adani Group stocks.
Topics:
1. Top Adani Group Stocks
Adani Enterprises Limited (AEL)
Market Cap: Rs.2,50,000 Crore. P/E: 45
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Adani Enterprises | 2160 | 2153 | -23% | -26.47% |
Adani Green Energy Limited (AGEL)
Market Cap: Rs.1,80,000 Crore. P/E: 160
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Adani Green Energy | 697.25 | 697.25 | -20% | -31.48 |
Adani Ports and SEZ
Market Cap: Rs.2,40,000 Crore. P/E: 25
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Adani Ports | 1119 | 785 | -13.23% | -18.64% |
Adani Power Limited
Market Cap: Rs.1,80,000 Crore. P/E: 14.5
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Adani Power | 474 | 380 | -9.62% | -21.52% |
Adani Total Gas Limited
Market Cap: Rs.66,000 Crore. P/E: 95
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Adani Total Gas | 602 | 527 | -10.38% | -16.41% |
Ambuja Cements
Market Cap: Rs.1,20,000 Crore. P/E: 40
| Name | Current Price | 52W Low | 1D Price Change | 30D Price Change |
| Ambuja Cements | 480 | 408 | -12.66% | -16.07% |
2. The Reason Behind the Massive Selling
The primary cause for the massive sell-off in Adani stocks can be traced back to allegations stemming from the United States. In the US, Gautam Adani, the chairman of the Adani Group, along with seven others, have been indicted for their alleged involvement in a bribery and fraud scheme.
More Detail
- Bribes To Whom: The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have accused Adani of participating in a scheme. In this scheme, allegedly $250 million (approximately Rs.2,029 crore) in bribes were allegedly paid to Indian government officials (in India – mainly to Andhra Pradesh officials)) to secure lucrative solar energy supply contracts.
- Why Bribe Were Paid: In 2019, a 15,000 MW solar energy project was under the bid. Adani Power and Azure Power were selected for the development of the project. Adani and Azure were supposed to build the power project and sell the electricity to SECI. SECI in turn will sell the bought power to the “state electricity distributors.” But SECI was not able to secure this sale contract with electricity distributors as the power obtained from Adani-Azure was “too high.” Hence, final agreement between SECI and Adani-Azure could not be signed. This is where, allegedly, the bribes were paid to secure the contract even after the pricing problem.
- What is the US Link: The allegations state that Adani Group submitted incorrect “declarations and disclaimers” while raising the funds in the US for this project. Moreover, subsequently, the Adani Group officials have given incorrect clarification to the questions asked to them, in the US, on this very bribery charges. Why US was asking these question to Adani? Because Adani Group was raising funds (loans) in the US from its banks and financial institutions (read more about it here).
- What are the Charges: The charges include securities fraud, conspiracy to commit securities and wire fraud, and violations of the Foreign Corrupt Practices Act (FCPA). It prohibits bribery in foreign business dealings.
Allegedly, the bribes are paid in India to Indian Officials, Why DOJ and SEC is reacting?
The U.S. DOJ and SEC are taking legal action against Gautam Adani because the alleged bribery scheme involved raising funds from U.S. investors and hence has potentially violated U.S. securities laws.
Adani Group has raised large sums of money in the US. They have raised funds through bonds and ADRs in the US which were underwritten by US Banks. How underwriting is done? If Adani Group wants to raise funds in US, it will hire a US bank like say Goldman Sachs. The bank helps Adani issue shares (ownership) or bonds (loans). The bank will also finds buyers in the US, like mutual funds or big investors (HNIs). If some shares or bonds don’t sell, the bank buys them itself.
This way, Adani Group persons who are implicated in the allegations, had reportedly raised over $175 million from U.S. investors, which could fall under U.S. jurisdiction.
Additionally, the FCPA allows the U.S. to prosecute foreign nationals or companies for bribery if they are listed on a U.S. stock exchange. They can also prosecute if the bribery scheme involves U.S. citizens or impacts U.S. commerce. FCPA is thus providing legal grounds for the DOJ and SEC to act against Adani Group.
3. Fundamental Analysis for Investment Post-Correction
While the current scenario might deter many investors, here’s a perspective on which Adani stocks might still hold investment potential after a price correction:
- Adani Ports and SEZ: Despite the current downturn, APSEZ remains a fundamentally strong entity due to its dominant position in India’s port sector. If it can navigate through current regulatory and legal challenges, its operational efficiency and strategic port locations could still offer growth prospects.
- Ambuja Cements: It holds a strong position in the cement industry. This company might be less affected by the current legal and financial controversies surrounding the Adani Group. Why? Because the allegations are particularly related to renewable energy projects. Ambuja Cements has a significant market share. It potentially offers a safer investment within the group if one is looking for stability amidst the current turmoil.
Conclusion
The allegations against Gautam Adani have undeniably shaken investor confidence in Adani Group stocks.
However, for those with a long-term investment horizon, there might be opportunities in stocks like APSEZ, and Ambuja provided they navigate through the current legal and financial storms successfully.
Always remember, investing in stocks post major corrections involves assessing not just the current valuation but also the company’s potential to recover and grow amidst resolved legal issues.
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Have a happy investing.
