3 reasons the Nifty 50 index is soaring amid the Adani debacle
- The Nifty 50 index has bounced back from its lowest level this year.
- It has done well even as Adani stocks plunge after a short-seller report.
- Investors view Adani as an isolated issue that is not broadly shared by other companies.
The Nifty 50 index has done well in 2023 even amid rising concerns about Adani Enterprises. The index, which is made up of the top blue chips in India, was trading at 18,000 rupees on Thursday, ~3.8% above the lowest level in 2023. On the other hand, all Adani companies have seen their shares plunge by over 50% this year.
Indian stocks remain resilientCopy link to section
The Nifty 50 and Sensex indices have defied expectations this year as investors focus on Indian companies. Following Hindenburg Research’s report on Adani, most analysts expected a contagion effect to roil the market. Some analysts compared it with the Lehman moment when global stocks plunged following the collapse of Lehman Brothers.
However, most Indian conglomerates, which make up the Nifty 50 index have done well even as Adani implodes. Reliance Industries share price has jumped by over 6% from its lowest level this year. Similarly, most companies that make up the Tata Group, including Tata Motors and Tata Consultancy have also done well.
A look at the Nifty 50 index constituents shows that companies like ITC, Bajaj Finance, UPL, and Mahindra have seen their shares jump by over 10% in the past 30 days. Therefore, the Lehman moment many analysts were expecting has not happened.
There are three main reasons for this. First, as I wrote on this report, India’s economy is growing at a relatively fast pace helped by low energy prices and increased foreign direct investment (FDI). This FDI is happening as more companies diversify their manufacturing from China.
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Second, while Hindenburg’s report on Adani received a lot of spotlight, it did not prove that the company was running a con. The issues raised were related to shell companies that were used to manipulate the stock and there was no issues on accounting. As such, investors view Adani as an isolated issue.
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Finally, Indian stocks have jumped as expectations rise that the Reserve Bank of India (RBI) was nearing the end of its hiking cycle as inflation cools.
Nifty 50 index forecastCopy link to section
The four-hour chart shows that the Nifty 50 index has managed to move above the upper side of the descending channel pattern that is shown in blue. This is a sign that there are still more bulls in the market. Also, it has risen above the 23.6% Fibonacci retracement level at 17,993.
The index has risen above the 50-day moving average. Therefore, there is a possibility that the index will continue rising as buyers target the highest level in 2023 at 18,886 rupees.