Analysts turn cautious on Adani Group companies, suggest cutting exposure

Concerns had shot up on shares of Adani Group stocks after a report by Bloomberg last week showed signs of concentrated holdings in group share companies by select foreign portfolio investors (FPIs). Matters got worse when National Securities Depositories Limited (NSDL) froze the account of three of these FPIs, holding shares worth Rs 43,500 crore in four of the six group companies, turning the Street cautious on these stocks.  

Shares of all six companies - Adani Enterprises, Adani Green Energy, Adani Ports, Adani Power, Adani Total Gas and Adani Transmission - hit their respective lower circuits in intra-day trade today, down between 5-15 per cent. READ ABOUT IT HERE

Analysts say till there is more clarity on the issue and clarification, if any, from the company, investors should remain cautious and refrain from making any fresh investment in the related stocks. READ THE COMPANY CLARIFICATION HERE

A report by Economic Times (ET) on Monday said that NSDL froze accounts of three FPIs - Albula Investment Fund, Cresta Investment Fund and APMS Investment Fund on or before May 31. These investment funds together hold 6.82 per cent in Adani Enterprises, 8.03 per cent in Adani Transmission, 5.92 per cent in Adani Total Gas and 3.58 per cent in Adani Green, ET said. It added that Sebi has also initiated an investigation into the stock price movement of Adani companies. READ HERE

Last week, a Bloomberg report had named these three firms as ones that have put more than 95 per cent of their assets in Adani group firms. READ HERE

"These so-called FIIs are holding most of their investment in Adani group stocks. Typically, a normal FII would have bought other stocks also. Now, that their Demat accounts have been frozen, it means something could be wrong. And if this turns out true, then it can be a big issue not just for the Adani Group stocks but also for the markets overall," said independent market expert Ambareesh Baliga.

Shares of Adani Group companies have risen meteorically in the past one year. Adani Total Gas has zoomed over 1,100 per cent while flagship firm Adani Enterprises has offered 950 per cent returns to investors. Others have added between 140-680 per cent. In comparison, the BSE Sensex has risen only 55 per cent, ACE Equity data show. The sharp rally in share prices has also catapulted Gautam Adani to the spot of the second richest man in Asia, next to Mukesh Ambani.

The conglomerate also got a boost after MSCI included three more Adani firms to its India benchmark index last month, taking the group’s total companies to five in the index. This leads to compulsory buying by investors who track that index.

"One should cut back exposure to the Adani Group companies. The way they have moved up compared with the earnings they have been showing, clearly, they are overvalued," Baliga added.

Another market expert, who did not wish to be named said: "Many of the Adani Group companies don't make profits but their prices have risen too much. Someone has conned out the stocks. We cannot paint all the companies with the same brush. There are some companies that have wonderful assets, like Adani Ports but their valuations cannot be justified. The rally in lesser-known group companies, like Adani green and Adani Total, has to be investigated."

Most of the companies have reported a strong rebound in their quarterly performance over the last year. However, the relatively low free float has been the subject of discussion in market circles.

"One has to be careful and avoid these stocks, at least for the time being. It should not turn out to be like Anil Dhirubhai Ambani stocks," the market expert added.

On the flipside, Deven Choksey, MD at KR Choksey believes the conglomerate should be given the benefit of the doubt and investors must not jump the gun.

"Valuation wise stocks are trading expensively for some time now. Those looking to invest for the short term must play securely. However, if there is no fundamental wrongdoing, then probably things can turn out well also. And this could just be a regulatory requirement. One must wait and see. I would not like to jump the gun yet."