Adani Enterprises Cracks 5%, Is it the 'Ultimate' Short Play?

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Ahead of the US Fed’s meeting outcome, the market participants are cautious which has also led to some profit booking. The benchmark Nifty 50 index remained volatile so far and is currently trading 0.42% down at 17,742 by 12:57 PM IST, with 9 out of the 11 sectoral indices trading in the red zone. 

Frontline stocks such as HDFC (NS: HDFC ) twins, ICICI Bank (NS: ICBK ), Infosys (NS: INFY ) etc. are all witnessing selling pressure in today’s session. One stock that is about to enter the Nifty 50 index by the month is much-talked-about stock - Adani Enterprises (NS: ADEL ). The merciless rally in the stock has become the talk of the town for a long time. Currently, trading over an unbelievable P/E ratio of 562, the stock kept on defying gravity for a long time. However, now the tide seems to be turning, finally!

The share price of Adani Enterprises tanked over 5% in today’s session to INR 3,640, recovering a bit from the day’s low of INR 3,572.5. Some of the credit could be given to today’s weak market sentiments, but the sharp correction in the stock is worth noting. News that is making rounds is that the Adani (NS: APSE ) Group has pledged its “entire stake” in its recently acquired cement manufacturers ACC (NS: ACC ) and Ambuja Cements (NS: ABUJ ). The total worth of this pledged stake is estimated at around a massive US$13 billion!

Well, it is not much surprising as the group’s working model is majorly based on leveraging its existing assets and mobilizing the funds within the group companies for aggressive growth plans. But it seems like investors aren’t happy with the recent move by the group and as a result, all Adani-listed companies took a plunge today. 

Image Description: Daily chart of Adani Enterprises with the RSI at the bottom

Image Source: Investing.com

Most importantly, Adani Enterprises’ shares are down significantly from the highs and have formed a massive bearish engulfing candlestick pattern on the daily chart which depicts a trend reversal to the downside. The bigger this candle is, the stronger the reversal signal. In this case, the engulfing candle has engulfed the real bodies of the past three candles. That’s something!

The position of this candlestick pattern holds high importance. The higher it forms amid an up move, the better the chances of a reversal signal. The candlestick pattern has formed at an ‘all-time high’ level, hence its effectiveness should not be underestimated. The RSI on the daily chart was showing a reading of 85.2 (yesterday) which depicted an excessively overbought status of the security, which further favors the impending corrective phase. Today’s sell-off also threw the RSI value below the 70-mark (first time after April 2022) which is a classic sell signal according to the indicator.

It requires an extremely high-risk appetite to make a bearish position in Adani Enterprises, primarily due to the massive contract value in the derivatives market, which is currently at around INR 18.3 lacs and attracts a margin of over INR 5 lacs. If you ask how deep the stock could fall, the nearest support is present at around INR 3,000.

 

Disclaimer: The above-mentioned article is not a recommendation to buy/sell/hold any security.

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  • Sam Uppuluri @Sam Uppuluri
    AWL hit the upper circuit in the morning..till now..
    Like 0

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