Time to Buy ‘Extremely Oversold’ Adani Enterprises?
All Adani Group companies have been the talk of the town since Hindenburg Research alleged that the group had committed financial fraud. The relentless selling in the group companies is evident by looking at perpetual lower circuits in most of the counters. Some of the stocks have cracked over 50% from their 52-week highs in a matter of few days.
Keeping Hindenburg Research’s report aside, strictly from a technical point of view, these stocks are now extremely oversold. For instance, Adani Enterprises (NS:), the largest group company with a market capitalization of INR 2,43,430 crores (as of yesterday) took a mind-boggling hit of 61.77% from the all-time high of INR 4,190 marked in December 2022 to a low of INR 1,601.55, marked today so far, amid a 25% intraday plunge. That’s some crazy level of selling which is rarely seen in a large-cap stock.
Image Description: Daily chart of Adani enterprises with the RSI at the bottom
Image Source: Investing.com
On the technical front, no support levels seem to have worked in the recent past as the stock sliced through all of them like a hot knife through butter. A support level is simply a buying zone wherein buyers are expected to kick in to lap up the company’s shares. As panic-selling is going on with no one actually willing to buy the shares, it’s irrelevant to talk about support levels.
So what should be the trading strategy here? The trend is steeply negative without a doubt. However, the RSI (daily, 14) is currently showing a reading of a mere 13! which makes it extremely difficult to go short at the current beaten-down levels. A single sharp bounce would take every short seller for a ride. So, despite a visible downtrend, initiating short positions at these levels is not a piece of cake.
In my opinion, ‘extremely high-risk traders’ can try to go long at these ~INR 1,600 odd levels. The logic is very simple, a very sharp sell-off in an extremely short span of time, and this is a large-cap stock, in fact, the 20th largest company on the NSE. The risk-to-reward ratio looks quite favorable from here. Also, hedging can be done to further reduce your risk. Even on account of a minor bounce, one could see an easy INR 400 rally to the immediate resistance of INR 2,000. I would reiterate again, this contrary long view should only be played by experienced and extremely high-risk traders. For those still looking to go short, I would still emphasize waiting for a bounce, i.e. for INR 2,000, at least.
The volatility in this counter is unprecedented which is not an ideal playing field for inexperienced traders. There is no view on the long-term investment on any of the group companies until the group clears the air.
Disclosure – I have a position on Adani Enterprises.
