Is it safe to buy the Enterprise's share price dip?

Adani Enterprise share price has staged a strong comeback as it jumped to a high of ₹2,330 on Monday. It has now rallied by over 15% from its lowest point last week, when the company’s founder was indicted in New York. It remains 37% below its highest level this year, meaning that it is in a strong bear market. 

Why Adani Enterprises share price is soaring

There are three primary reasons why the Adani Enterprises stock price has bounced back despite the recent setbacks that the company has found itself in recently. 

First, in a statement on Monday, it reiterated that it had adequate funds to cover its debt requirements through next year. The statement also noted that it had passed $10 billion in EBITDA for the first half of its financial year. It was now on track to hit $12 billion for the full year. 

These numbers mean that the company has time to find out how to raise additional cash in the coming years if global liquidity providers decide to cut it off. 

Second, analysts believe that last week’s lawsuit in New York will lead to short-term headwinds. For one, it is unlikely that Adani will be jailed in the US since to do that, India will need to extradite him.

Adani is widely seen as being close to Narendra Modi, meaning that his extradition will be unlikely. Also, he was among the first Indian leaders to congratulate Donald Trump after his election victory earlier this month. 

Trump, who will control the Justice Department and Foreign Policy, is known to be highly transactional. This means that he could cut a deal that will save Adani from facing the full extent of the law.

Third, Adani share price has jumped as investors reflected on the last time when the stock collapsed in early 2023. At the time, it dropped to ₹1,037 after the Hindenburg report, which accused it of fraud and share manipulation. Since then, the stock pared back most of the losses and jumped to ₹3,742, its highest level on June 3rd of this year. 

Therefore, investors believe that the company will stage a similar rebound, especially when it continues reporting strong financial results as it has done in the past.

The most recent financial results showed that Adani Enterprises income jumped by 14% in the first half of the year to INR 49,263 crore. Its EBITDA jumped by 47% to ₹8,654 crore, while its profit before taxes rose to ₹4,644 crore. As such, these businesses will likely continue doing well in the coming months despite the lawsuit. 

Read more: Gautam Adani vs Hindenburg: How corporate chaos unfolded – a timeline

Adani’s woes remain

Still, there are chances that the Adani Enterprises share price will face some headwinds because of its soiled reputation. 

For example, the company’s big deals in Kenya have been canceled following the US lawsuit, citing corruption issues. 

It is also having negative reputation issues in other countries like Bangladesh and Sri Lanka. According to Bloomberg, the US International Development Finance, which had agreed to lend more than $500 million to Adani in Sri Lanka is reviewing the proposal and analysts expect that it will cancel it. The government is also reviewing a wind project in Sri Lanka.

Adani Enterprises share price forecast

Adani chart by TradingView

The daily chart shows that the Adani stock price peaked at ₹3,745 in June this year. Since then, the stock formed a head and shoulders pattern, which is a popular bearish sign. It has dropped below the key support at ₹2,760, the neckline of this pattern.

The stock has formed a death cross, which happens when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other. It has now dropped below the key support at ₹2,500. 

Adani share price has moved slightly above the key support at ₹2,144, its lowest point on November 20. 

Therefore, there is a likelihood that the stock will continue falling as sellers target the key support at ₹2,000.