Embattled Indian billionaire Gautam Adani's ports-to-power conglomerate is still far from out of the woods, as it continues to grapple with the fallout of Hindenburg Research's allegations of fraud earlier this year, according to analysts.
But as investors await the delayed findings of the Securities and Exchange Board of India's (SEBI) investigation into the matter – which India's top court last Wednesday said had to be delivered by August 14 – it could finally bring some much-needed clarity to stock markets.
“The probe’s findings will have a major impact on both Adani Group and the market at large, in line with the situation we witnessed after the publishing of the Hindenburg report,” says Raghvendra Nath, managing director of Mumbai-based Ladderup Wealth Management.
“The impact could be either euphoric or disastrous, depending on the findings, and the market is keeping its eyes peeled.”
Watch: How India's Gautam Adani lost title as Asia's richest man
The Adani Group has been trying to manage the impact of US-based short-seller Hindenburg Research's report since it emerged in January, accusing one of India's largest conglomerates of fraud, stock market manipulation and improper use of tax havens.
The company has denied the allegations and has been actively trying to ease investor concerns since the report surfaced.
These efforts include overseas roadshows to reassure investors and it has reportedly invited bankers to tour its airports and ports next month to boost confidence.
Investors were rattled by Hindenburg's claims, which resulted in more than $150 billion being wiped off the market value of Adani companies by late February.
Those losses have since pared back, particularly after US investment company GQG Partners injected $1.87 billion into four Adani Group entities at the beginning of March.
“The group is trying re-establish its credibility by taking steps to restore the confidence of the investors,” says Jyoti Prakash Gadia, managing director of investment bank Resurgent India.
“It has repaid and prepaid some debts to deleverage the balance sheets and is trying to consolidate the group activities. Some of the major expansion plans have been deferred to ensure focus on the revival of the existing enterprise.”
However, these efforts have only had a limited effect due to the magnitude of the Hindenburg allegations, which also triggered a political row due to the ties between Mr Adani and Prime Minister Narendra Modi.
While “most of the group companies reported decent numbers in the fourth quarter, market participants do not look convinced that the performance can be sustained over longer periods”, says Manish Chowdhury, head of research at stockbroker Stoxbox.
“Moreover, sentiment remains sour as the group has faced multiple roadblocks since the Hindenburg allegations including an FPO [follow on public offer] withdrawal and regulatory scrutiny.”
As a result, the Adani Group still has a long way to go to a full recovery in its share prices.
The situation worsened last week, after two Adani Group entities – Adani Transmission and Adani Total Gas – were removed from the MSCI Global Standard Index amid concerns over a potential dilution from a fund-raising plan.
This led to more than $10 billion of the group's market value being wiped out by Friday morning.
Some relief came later in the day, when an expert panel appointed by India's Supreme Court to look into the allegations said that “prima facie, it would not be possible for the committee to conclude that there has been a regulatory failure around the allegation of price manipulation”.
The market regulator's surveillance system found “no coherent pattern of abusive trading”, the panel added.
This led to a rally in Adani Group stocks, with Adani Enterprises gaining 3.5 per cent on Friday and more than halving the company's losses for the week to $4.5 billion. However, Adani Transmission ended the week 11 per cent down.
Meanwhile, Goldman Sachs substantially reduced its exposure to the Adani Group in its environmental, social and governance portfolios following the Hindenburg report, according to Bloomberg data released last week.
In another development, market regulator SEBI sought a six-month extension from the Supreme Court to deliver the findings of its investigation after missing the original deadline of May 2.
The handling and response of the Supreme Court and SEBI to the Adani crisis is seen as a test of the country's institutions and financial and corporate governance practices, analysts say.
“Looking at the complexity of the transactions and the multiplicity of the stakeholders, including foreign investors, additional time was required to derive the exact position of non-compliance, if any,” says Mr Gadia.
“SEBI needs to go into the depth of all the transactions to arrive at the correct position relating to the violations or non-compliance, if any, of the prescribed rules, regulations, guidelines, and policies. It is hoped that the ultimate truth will emerge to provide clarity on the whole issue as early as possible.”
The Supreme Court's three-month extension for SEBI to finalise its investigation is a step in the right direction, Mr Chowdhury says.
“The investigation authorities would require to collate large amount of data and information for ascertaining the complex transactions and it is always advisable to have a thorough analysis before arriving at the right conclusion as it involves one of the largest corporates of India and multiple stakeholders,” he adds.
Although some observers have raised questions about how much the probe will uncover, he says that SEBI's findings will prove critical and determine investor sentiment.
“The investigation would provide conclusive evidence of the Hindenburg allegations,” says Mr Chowdhury. “Any favourable outcome from the probe will definitely provide wings to the stocks to gain their previous highs.”
The regulator's investigation is likely to prove to be conclusive, says Niranjan Shastri, associate professor at the School of Business Management, NMIMS Indore.
“SEBI is an empowered independent regulator of capital markets and definitely findings of the SEBI in this matter will have lot of impact on bringing clarity,” says Mr Shastri.
“In my opinion, in comparison to any foreign research firm that is a so-called short seller too, SEBI's findings should be considered the more reliable one.”
Until the investigation is completed, the Adani Group will continue to face the challenge of raising funds for its operations and expansion plans.
“Because of the crises, Adani's spending speed has reduced drastically,” says Mr Shastri.
“No doubt, the Adani Group needs funding of at least 250 billion [Indian] rupees [$3 billion] in the very near term and recently the group companies are looking for it through a Qualified Institutional Placement.”
The boards of two Adani Group companies have approved proposals to raise up to $2.6 billion, in a move that triggered some concerns about possible equity dilution.
However, raising funds is a key part of the Adani Group's comeback strategy.
“As we can see, the Adani Group has had to face continuing pressure despite efforts to reassure investors and address outstanding debt,” says Mr Nath.
“However, the group seems to be going ahead full throttle.”
The company's fall from grace has been significant and its recovery will not happen overnight, Mr Nath adds.
“In the post-pandemic period, the Adani Group’s stocks enjoyed an unprecedented run, taking Gautam Adani to the position of third-richest person in the world,” says Mr Nath.
“The exponential rise in the stocks was considered a testament to the India growth story, but the Hindenburg report put a spanner in this expansion saga.”
However, as the story continues to unfold, Mr Nath says he “remains cautiously optimistic on the outlook for the group”.