Three reasons why one should avoid beaten-down Adani stocks

Now that the stocks have fallen, should one buy these high-growth Adani Group stocks?  

Adani Group stocks have taken a heavy beating on the bourses in today’s trade with almost all the stocks of the Group locked in the lower circuit. That is quite a change in the trend with investors, who are used to see the Group stocks locked in the upper circuit. Now that the stocks have fallen, should one buy these high-growth Adani Group stocks?  

Here are the three strong reasons why one should NOT buy Adani Group stocks right now:- 

FPIs accounts blocked: The reason behind the fall in the stock is serious and will have an overhang on the stock prices of all Adani Group stocks for quite some time.  As per a leading daily, National Securities Depository Ltd (NSDL) has frozen the accounts of three foreign funds namely, Albula Investment Fund, Cresta Fund, and APMS Investment Fund, which together own over Rs 43,500 crore worth of shares in four Adani Group companies. These FPI accounts will not be able to sell the holdings nor will they be able to buy fresh stocks in the Indian markets. The reasons for blocking the account are simple. These funds have a huge allocation to Adani Group shares. One may ask what the problem with a higher allocation is. If one looks in detail, the allocation is more than 90 per cent for some FPIs account. It looks like the FPI account was opened to buy Adani shares only. It was only a matter of time that the regulators would have been alarmed. No amount of clarification and announcement will help settle the dust quickly, looking at the seriousness of the issue. Besides, haven't you heard - ‘Never catch a falling knife?'

Stock valuations: If you look at the PE of Adani Enterprises, it is close to 169, Adani Power -42.79, Adani Total Gas -366.96, and Adani Green -862.33. There is no way on earth that these high valuations can be sustained even if this current problem was non-existent. 

Stretched markets: Nifty and Sensex along with broader markets are trading at all-time highs. The market itself is poised for profit booking. In times of profit booking in markets, the need of the hour is to stick with quality & not overvalued stocks dealing with issues related to shady money getting invested in the stocks. 

In the past one year, Adani Transmission shares have gone up by approximately 669 per cent, Adani Total Gas shares have gained by around 349 per cent while Adani Enterprises shares strengthened by 972 per cent and Adani Green soared 254 per cent.