Adani Enterprises Ltd. surged, leading gains in the group’s stocks after the conglomerate’s founders pre-paid some debt and traders covered short positions.
The flagship’s stock rallied as much as 25%, while three of its peers jumped by their 5% limit in early trading. That helped trim the slump in the group’s market capitalization to $112 billion since US-based Hindenburg Research released a report on Jan. 24 alleging market manipulation and accounting fraud — claims Adani has repeatedly denied. The loss was $118 billion as of Monday.
Read here: Some Adani shares rise from Hindenberg crisis, after group’s market losses hit $110 billion
The reprieve came as Gautam Adani and his family prepaid $1.11 billion worth of debt in a bid to calm a selloff that sparked fears of a contagion across India’s economy and markets. Concerns had grown over the billionaire’s access to funding amid the turmoil, and the scheduled release of several group companies’ earnings on Tuesday will give investors a chance to assess their financial health.
“The recovery is happening due to a variety of factors: the prepayment, short covering and technicals all are driving it,” said Deven Choksey, managing director at KRChoksey Holdings in Mumbai. “The group is expected to take more corrective actions going forward.”
Adani Ports & Special Economic Zone Ltd. reported third-quarter net income on Tuesday that missed the average analyst estimate, and said it is considering repaying 50 billion rupee ($604 million) of loans.
Adani Green Energy Ltd., Ambuja Cements Ltd. and New Delhi Television Ltd. are also due to announce results the same day. Adani Transmission Ltd. jumped by its limit after posting a 78% gain in third-quarter profit on Monday.
Hindenburg’s accusations have propelled long-held concerns about the Adani Group’s debt-fueled expansion onto the global stage, and opposition lawmakers forced parliamentary hearings to be adjourned for three days as they demanded answers.
Some of Adani’s dollar bonds fell into distressed territory following the criticisms, with debt investors holding initial conversations with financial advisers and lawyers to weigh their options.
“Amid news of prepayment of loans, the rally in Adani group shares looks more of a tactical bounce from oversold levels,” said Nitin Chanduka, a strategist at Bloomberg Intelligence.
Read here: How Adani selloff stacks up against the biggest stock collapses
Easing Volatility
Seven of the 10 group stocks were higher on Tuesday. Adani Enterprises’ rally came after the stock tumbled by about half since the explosive report.
The ratio of put-to-call options on the flagship’s stock, as measured by open interest, slid to a six-month low at the end of last week, briefly dropping to about two standard deviations below the 24-month average. Whenever the ratio has breached that level in the past, a reversal in the shares has taken place, according to data compiled by Bloomberg based on regression analysis.
“The volatility levels in the stocks have reduced and swings could narrow further if there are no negative catalysts or news developments,” said Deepak Jasani, head of retail research at HDFC Securities Ltd. “The force of selling may reduce and that may give a small boost to prices.”
In the credit market, some of dollar bonds issued by the Adani Group of companies clawed back their daily losses. Nine of 15 dollar bonds issued by the group rose, according to data compiled by Bloomberg. The gain was led by Adani Renewable Energy’s debt due in 2039, which jumped 0.9 cents as of 1:34 p.m. in Mumbai.
Hindenburg Research has alleged that a web of Adani-family controlled offshore shell entities in tax havens were used to facilitate corruption, money laundering and taxpayer theft. The conglomerate has called the report “bogus,” and threatened legal action. Adani gave a video speech last week stating that the group’s balance sheet is healthy.
Investors are keenly watching the group’s actions, with some saying it will take a lot more effort to restore the market’s confidence.
The repayments “can provide some relief but it won’t be a change of trend, which is down,” said Sameer Kalra, founder of Target Investing in Mumbai. “We need to keep watching how much more repayment happens, how the capex goes.”