Analysis of the impact of the Hindenburg report on Adani Group shares

Adani Group shares have been on a roller coaster ride so far this year. They initially fell by 30 to 80 percent after the Hindenburg crisis and rose by 11 to 86 percent after the vote of confidence by the GQG partners.

While there has been much higher trading volume in Adani Group shares during this up and down streak over the past few weeks, data on shares delivered suggests buyers may have been more interested in speculation than investment.

Multiple increase in trading volume

We looked at the trade and delivery volumes of all Adani Group companies. Deliverable Quantity is the number of Shares physically delivered on a given day; Deliverable quantity as a percentage of total shares traded was also taken into account. Generally (although not always the case), higher delivery volume as a percentage of total shares traded in daily trading means that market participants are becoming more positive and shares are accumulating in the short to medium term.

Of course, this point is more appropriate when the percentage of delivery volume increases in sync with the uptrend in stocks. Higher delivery volume suggests that investors not only want to benefit from the stock’s intraday movement, but will hold out for some time to come.

The fact that market participants saw an enormous opportunity for speculation is shown by the volume of Adani Group shares traded on the stock exchanges. Try this. The total daily average volume of shares traded on both the BSE and NSE for Adani Enterprises over the period from January 2, 2023 to January 23, 2023 was approximately 17.5 lakh shares. But the average daily volume of shares traded after Jan. 24 (when the Hindenburg report surfaced) has increased tenfold to about 1.77 billion shares. Likewise, the trading volume of Adani Ports and Special Economic Zones via BSE and NSE has seen an 8-fold increase in average daily trading to 3 billion shares since Jan. 24. Other group companies also recorded a significant increase in traded volumes (see table).

Lower delivery percentage

While the deliverable quantity has also multiplied in absolute terms after Jan. 24, the deliverable quantity is still lower relative to the total traded quantity for stocks in the derivatives segment such as Adani Enterprises, Adani Ports, Special Economic Zone, ACC and Ambuja.

Adani vs. Hindenburg: An eternal battle between the bulls and the bears
Adani vs. Hindenburg: An eternal battle between the bulls and the bears

For example, at Adani Enterprises, the average daily shippable amount from Jan. 2 to Jan. 23 was around 3.85 lakh shares, while it has increased many times to over 30 lakh shares. However, the average deliverable quantity as a percentage of the total traded quantity actually fell from 20 percent to 17 percent. This trend points to further speculation.

Also Read: Adani vs. Hindenburg: A Brief History of Short Sellers

The only companies that have seen their shippable percentage increase are non-F&O stocks that are activating circuit breakers. These stocks typically come with a hedging limit, which can be 5%, 10%, or 20% of the previous closing price, and the moment the stock hits circuit levels on either side (up or down), the Trading halted in these stocks. This applied to Adani Green, Adani Power, Adani Wilmar and Adani Total Gas (see table).

The Hindenburg report posts that the share of the deliverable quantity in the total trading volume has increased significantly for these companies. While these stocks have undergone a sharp correction and there may have been some buying in these stocks, the current circuit breaker rules and the shares trading at lower levels for many days would have forced buyers to take over the stocks. This trend, in turn, suggests that many could have entered just as traders, but could have become investors due to a lack of choice.