On March 3, 2023, the Nifty PSU Bank index surged almost 4 percent on the National Stock Exchange (NSE) amid a sharp rebound in Adani group stocks. This gain was driven by the State Bank of India (SBI), Bank of Baroda, Punjab & Sind Bank, Union Bank of India, UCO Bank, Bank of India, Bank of Maharashtra, and Indian Overseas Bank, which saw gains ranging from 4 percent to 7 percent. At 10:29 AM, the Nifty PSU Bank index was the top gainer among sectoral indices, up 3.8 percent, compared to the Nifty 50’s 1.2 percent rise.
The stocks of Adani Group firms ascended as much as 11% during intraday trades on March 3, following the promoters’ sale of shares amounting to Rs 15,446 crore in four of its listed entities to GQG Partners, a renowned US-based global equity-investment boutique firm. GQG has a proven record of being one of the pre-eminent investors in global and emerging markets, with outstanding long-term track records.
As of January 31, 2023, GQG Partners manages client assets that exceed AUD$130 billion (USD $92 billion). Rajiv Jain, the Chairman and CIO of GQG Partners, asserted that they believe the long-term expansion prospects of these firms are significant. Additionally, they are delighted to invest in companies that will contribute to the progression of India’s economy and energy infrastructure, encompassing their energy transition over the extended run.
The Adani Group has been in deep trouble since the US-based short seller Hindenburg Research released a report pointing out irregularities in the conglomerate’s books and accused it of manipulating accounts on January 24. Banks have an exposure of Rs 80,000 crore to the conglomerate, with SBI leading the pack with Rs 27,000 crore. It amounts to 0.8 percent of its overall loan book. Dinesh Khara, chairman of the bank, said that there are no challenges concerning the conglomerate’s debt servicing abilities.
Most banks (specifically PSBs) have seen a decent correction as a result of the exposure-concerns around the Adani Group. Analysts at Emkay Global Financial Services expect the probability of default to remain considerably low for now. Moreover, banks are witnessing strong earnings momentum on the back of better growth/margins and receding loan loss provision (LLP), which, coupled with the strong provisions/capital buffer, provide additional comfort. Thus, Emkay Global Financial Services believes that the recent correction in some fundamentally-strong bank stocks provides a good re-entry point. Within PSBs, the brokerage firm prefers BOB, SBI, and Indian Bank, given their ability to deliver healthy return ratios, capital buffer, and reasonable valuations, the brokerage firm said in its February report.