Sell-off in Adani, bank stocks turn investors poorer by Rs 11 trn in 2 days

The sell-off in Adani Group firms has wiped out $45 billion of investors' wealth over the last two sessions after Hindenburg Research alleged "brazen stock manipulation"

Investors have turned poorer by Rs 10.7 trillion in two days as a broad-based sell-off continued across domestic equities. Panic selling ensued in Adani Group stocks on Wednesday, after US activist investor Hindenburg Research alleged 85 per cent downside in group stocks "purely on fundamental valuations". The downbeat sentiment hit bank stocks as well where investors feared huge debt exposure towards Group companies may hit asset quality in months ahead.

On the bourses, frontline S&P BSE Sensex crashed 874 points, or 1.5 per cent, on Friday to close at 59,331. In two days, the index has tumbled 1,648 points. On the National Stock Exchange (NSE), the Nifty50 index closed at 17,604.   

In the broader market, the BSE MidCap and the BSE SmallCap index tanked 3 and 4 per cent, respectively, in two days.

Here're the key factors behind the fall:

Adani group stocks bleed: The sell-off in Adani Group firms has wiped out $45 billion of investors' wealth over the last two sessions after Hindenburg Research alleged on Wednesday that the Adani group had engaged in "a brazen stock manipulation and accounting fraud scheme". It also accused the conglomerate of improper use of offshore tax havens, and flagged concerns about the group's high debt.

Group stocks, including Adani Enterprises, Adani Wilmar, Adani Green, Adani Total Gas, Ambuja Cements, and Adani Ports, sunk between 5 per cent and 25 per cent in the intra-day trade today.

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, Adani stocks are likely to continue under pressure due to the fallout from the Hindenburg report. The elevated valuations of Adani stocks are a serious concern, he said.

Adani group under Sebi's lens: India's market regulator has increased scrutiny of deals by the Adani Group over the past year and will study a report issued by short-seller Hindenburg Research to add to its own ongoing preliminary investigation into the group's foreign portfolio investors, according to a Reuters report.

Some issues raised in the Hindenburg report point to concerns similar to what the regulator had regarding movement of funds between parties related to the Adani Group through offshore funds back into local companies, sources said. READ MORE

Bank stocks: The selloff in Adani Group shares due to concerns of inflated valuations triggered crash across banking and financial services stocks. In the past two trading sessions, the Nifty Bank plummeted over 3 per cent to hit a low of 40,191 levels, last seen in October, 2022. The Nifty PSU bank index, meanwhile, shed over 7 per cent in two days.

However, global brokerage CLSA said in a report, dated January 26, that Indian banking system's exposure is less than 40 per cent of total group debt.

"Within this, private banks' exposure is below 10 per cent of total group debt and most banks (including ICICI/Axis) have indicated that they have largely financed assets with strong cashflows, such as airports/ports. PSU banks do have material exposure (30 per cent of group debt) but this debt has not increased in the past three years." it said. READ MORE

Deceline in heavyweights: Apart from banking stocks, other index heavyweights like Reliance Industries, Infosys, TCS, and L&T came under heavy selling pressure on Friday.

Among them, shares of Reliance Industries (RIL) fell 3 per cent to hit 10-month low of Rs 2,312 in Friday’s intra-day trade, on the back of heavy volumes, as the sharp sell-off was seen across equities. The stock of country’s largest company in terms of market capitalisation traded its lowest level since March 2022. READ MORE

Technical levels: With today's decline, the Nifty50 index has breached below the lower end of the Bollinger Band, placed at 17,695, on the daily charts. If the index closes below this level, it may extend the decline till 17,289-odd level, its 200-day moving average. The 20, 50, 100, and 200-DMAs have given negative crossovers, indicating more pain ahead. 

However, if the index manages to pullback above the 200-DMA, it may face next resistance at 17,950 (100-DMA), and then at 18,000 (20-DMA).