Should you catch falling Adani stocks now? Here’s what Nirav Karkera, Head of Research, Fisdom has to say

As many as seven listed Adani stocks have plunged more than 50 per cent from their respective 52-week high levels amid the ongoing selling pressure in the group companies. Data showed that Adani Green Energy cracked 82.30 per cent to Rs 539.30 on February 22, 2023, from its 52-week high level of Rs 3,048 scaled on April 19. Adani Transmission, Adani Total Gas, Adani Enterprises, New Delhi Television (NDTV), Adani Power and Adani Wilmar have also slipped somewhere between 55 per cent to 82 per cent so far from their year’s high level. So, is it the right time to catch these shares?

In an interaction with Business Today, Nirav Karkera, Head of Research, Fisdom said that investors must be highly cautious as the jury is still out on the degree of truth to allegations and in case proven true, the estimate of further damage that the verdict could cause existing shareholders.

“However, if the group manages to regain investor interest on merit, Adani Ports, Adani Wilmar and Ambuja Cements stand to gain as fundamentally strong companies,” he added. Shares of Adani group companies have been under severe selling pressure after the US short-seller Hindenburg Research on January 24, 2023 alleged various kinds of fraud and accounts manipulations by Adani Group companies over the years.

Power index tanks 25%

The fall in Adani stocks also led to a steep fall in the Power index, which has crashed 25 per cent in almost one month. The BSE Power index declined to 3,338.02 on February 22, 2023, from 4,465.88 on January 24, 2023. Adani Green Energy, Adani Power and Adani Transmission together hold over 25 per cent weightage in the Power index.

Sharing his views on power stocks, Karkera said, “Most of the decline exhibited by sectoral index has more to do with the steep decline in prices of Adani group stocks with heavyweights in the sector, followed by overall choppiness in broader markets as investor sentiments turn sideways.” The benchmark equity index BSE Sensex has also plunged over 2 per cent in the past 21 trading sessions till February 22, 2023.

Challenges for D-Street

The market watcher believes that a couple of challenges have stemmed from the perception of the domestic equities being perceived as relatively expensive by foreign portfolio investors, the re-allocation of foreign investments to the reopening economy of China, the drawdown in banking stock performance over concerns around exposure to Adani group’s debt amid the debacle and surge in interest rates offered by fixed income alternatives presenting a stronger risk-reward payoff for the year.

“Many of these challenges are expected to persist through most of the year. In the absence of a positive surprise or clear and favourable resolution of any detracting factors, broader markets can be expected to remain largely sideways through the year. Such choppy markets are expected to open up a series of value opportunities across several counters which can be accumulated for performance anticipated to come through in the following year,” Karkera said.

Foreign institutional investors have sold shares worth over Rs 1.50 lakh crore since January 2022.

Market outlook and stocks to buy

On the other hand, he believes that there is a clear commitment towards a thrust on the public capex front, an expedited pace of project completion would be a confidence booster for the Indian equity market.

“Even as capacity utilisation increases, there seems to be a clear lag in commitments of capital expenditure by the private facet of the economy. Progress on the private capex front could bolster growth further. Alongside, as policy support nudges manufacturing towards centre stage, the global shift in manufacturing preference from China to India supports the segment’s progress in the same direction. Sustaining of energy prices at current levels, improving the situation in the food component of inflation and return of growth-conducive liquidity and interest policies could give India’s economic growth prospects a confident fillip,” he said adding the Indian market presents a variety of opportunities positioned at attractive valuations and robust growth prospects.

On the banking side, Karkera thinks that State Bank of India and ICICI Bank seem strongly positioned as contenders to lead growth, especially in the sectoral pack. “SBI is expected to lead earnings on the back of a consistently strengthening high-quality loan book, expanding net interest margins, stronger assets and improving cost efficiency. ICICI Bank is expected to grow on the back of efficiently growing liability franchise, strengthening financials and clear trajectory of bottom line expansion,” he said.

Karkera is also bullish on Tata Motors. He believes that the auto major is another contender to deliver strong growth in value to shareholders on the back of growth through market leadership, cost efficiency, EV ecosystem expansion, recovery through the JLR segment as key Asian markets’ demand rebounds and benefits of group synergies seeping into the bottom line with an expansionary effect.

“While Bharti Airtel is a strong play in the telecom segment and the 5G plus digitisation theme, Vodafone Idea could also find a place as a tactical bet as the government and promoters work towards restoring the entity’s financial health and ensure that critical services led by telecommunication infrastructure do not consolidate into a duopoly,” he said.

Also read: Hindenburg’s 85% downside warning is coming true as Adani Total Gas, Adani Transmission, Adani Green shares extend slide

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