The exponential rise of Adani stocks turned upside down when news stating the freezing of the funds of three of the biggest investors of the Adani group for an indefinite period by NSDL(National Securities Depositories Ltd.) came to light. This was not the first time when Adani stocks were in the limelight. Soon after the crash of the stock market due to the pandemic, Adani stocks along with the stock market started rising gradually but this was something different as they were rising at an abnormal pace.
Whether the market sentiments were bullish or bearish, it didn’t seem to matter Adani stocks as they continuously made newer all-time highs in the market. All the listed stocks of the Adani group pumped very hard resulting in gains of as high as 1121% in a year. Adani Enterprises, Adani Green energy, Adani Ports, Adani Power, Adani Total Gas, and Adani Transmission gave huge returns of 1049%, 366.15%, 145.83%, 172.9%, 1121.1%, and 785.84% respectively. The tables turned upside down when the above news sparked chaos in the stock market. Let’s have a look at the series of events that took place during the fall of the Adani Group.
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Fall of the Adani group (As it happened)
On 14th June a piece of news stating the freezing of three FPI’s came out and the most important thing that people noticed was that the three funds had a large portion of their wealth invested solely in the Adani stocks which created a buzz in no time. People were curious to know exactly why did NSDL took this step. But as it is a saying that if you’re in Stock Market, then no matter what the situation is, buy the rumour and sell the news. As soon as the market opened on 14th June, all of the Adani stocks started plunging at an abnormal speed. In a short period, all of the six Adani stocks listed in the Indian Stock Market started hitting their Lower Circuits.
At 11:30 A.M, the shares of Adani Enterprises were down 13.2% at ₹1,387 per share, Adani Green Energy was down 5% at Rs.1,156.85 per share, Adani Total Gas was down 5% at ₹1544.90 per share, Adani Transmission was down 5% at ₹1,522.50 per share. The market cap of the company fell to 1.4 lakh crores on the Bombay Stock Exchange after the news.
The reason behind this fall
The FPIs that were frozen by the NSDL reportedly held stakes worth ₹ 43,500 crores in four of the Adani stocks which were Adani Enterprises, Adani Green Energy, Adani Total Gas, Adani Transmission. As per the NSDL website the accounts of Cresta Fund, APMS Investment Fund, and Albula Investment Fund were frozen on or before May 31. The freezing of an account in such cases means that these foreign funds won’t be allowed to buy or sell any of the existing securities.
Officials which handle these foreign investors at custodian banks said that these steps were taken against the foreign funds due to insufficient disclosure of information regarding beneficiary ownership under the Prevention of Money Laundering Act (PMLA).
What’s happening now?
Nearly a month and a half after the freezing of the accounts of the FPIs by the National Securities Depositories Ltd.(NSDL) that led to a sharp fall in the Adani stocks, the depository stated that the account was frozen due to a matter related to Global Depository Receipts. They had nothing as significant to do with the Ahemdabad based Company.
The National Securities Depositories Ltd. which solely maintains the database of all the Foreign Funds inserted “GDR” after the names of 5 Foreign portfolio Investors including CrestaFund, APMS Investment Fund, and Albula Investment Fund which held a significant number of shares of the Adani group. This news meant that these accounts will be allowed to trade in the stock market as the issue was resolved.
As expected, all of the Adani stocks recovered on the very next day at the stock market leading to a surge in their prices. At present time, the Adani stocks are rising again having survived this fall and investors are once again looking interested in the Adani group.
Should you buy Adani Stocks?
The main question that arises right now is after seeing all these events, should one invest in Adani stocks. Well, the answer is simple. It depends on the retail trader or investor for which purpose they are purchasing these stocks. Fundamentally Adani stocks have given abnormal returns in one financial year but if you look at their profits then you will realize this for a fact that they are quite overpriced now. These are great stocks for the traders and they have a lot of volume on a daily basis which brings momentum to the stock catching the eyes of the traders. They tend to get a lot of entry and exit opportunities in Adani stocks. But if you look at the fundamentals, price-to-earnings multiple, price-to-book multiple, profitability, assets, the quality of balance sheet, and the quality of the Investors who have invested other than the promoter group, one does tend to step back. The stock market is a vast field and it has a lot of good stocks to grab. Just because of the hype, it’s not necessary that the stock can give profits to the investors in the long run.
If you tend to be a trader who participates in the activity of buying and selling of stocks regularly then Adani stocks can be a good bet as it has a lot of liquidity daily making the stock trendy. But at the same time, you must be cautious with such stocks as they can come under the radar of SEBI and NSDL if found manipulating the share prices.
Although Adani stocks gave tremendous returns to its investors in just one year, it is now a bit risky as well. The freezing of the funds may be over for now but it has surely raised a lot of questions about the company and its operations.