Two Adani Group companies, the flagship Adani Enterprises (AEL) and Adani Ports, experienced a sudden increase in trader interest at the start of November, which caused the stock prices to rise sharply before dropping in February after the publication of a report by US short-seller Hindenburg Research. This ultimately resulted in the cancellation of AEL’s 20,000 crore follow-on public offer (FPO) and a sharp decline in the market cap of nine listed group firms.
According to a Mint analysis of Bloomberg data on the historical price and positions of the two companies, participants who started and kept rolling over bearish bets for almost three months, despite suffering notional losses before the Hindenburg report and the withdrawal of the FPO, may have earned up to 35-50% gains in February when the stock prices of AEL and Adani Ports plummeted due to fraud allegations.
According to news reports, the Securities and Exchange Board of India is investigating market behaviour in Adani Group equities before and after the publication of Hindenburg’s report.
The market values of 10 listed Adani Group companies have nearly halved to 9.4 trillion since 24 January as a result of the investigation, which alleges fraud against the ports to renewable energy conglomerate. Also, it led AEL to withdraw their profitable FPO at the beginning of February.
AEL is responsible for over a fifth of the group’s overall market value loss to date, while Adani Ports, which has dramatically recovered from its February lows, is only responsible for 2%.
Open interest (OI), which records purchase or sell positions that are open or have not been squared off, increased, as was observed by AEL and Adani Ports. As the stocks declined in February, the positions were dramatically reduced.
According to Bloomberg data, the daily average OI for AEL increased from 24,000–36,000 contracts per day in January–October to 47,035 contracts in November. The increase in OI was bullishly correlated with the average daily price increase of 18% to 3,863 per (250 shares equal one contract) in November from the prior month. When the price averaged $3,666 a share in January, the OI remained above 40,000 daily average contracts. The average daily OI for AEL’s futures contract decreased to 37,228 in February, and the price decreased 48% month over month to $1,904 per contract.
Adani Ports’ general month average daily OI increased from 40,000 to 55000 contracts in January to October 2022 to 96,533 contracts in November. The average daily cost increased 8% on-month to $872. During two months, the daily OI stayed at 80,000–94000 while the stock values consolidated at 800–873. The average daily price decreased 29% to $563 in February, while open interest decreased to 78,749 contracts, giving shorts a significant advantage. After GQG Partners invested $1.87 billion in group companies on March 8, the stocks rose.