What’s Behind the Rally of Adani Power - Detailed Analysis

As the largest private thermal power producer in the country, Adani Power Limited has been in the spotlight for quite some time now. From coal-based to solar-based power, today, Adani Power has an installed capacity of 15,250 MW.
 

Adani Power Limited, a part of the diversified Adani Group, recently presented its Q1 results for FY 2024-25. A detailed analysis of the company and its performance will help you understand the reasons behind the rallying of the industry giant. However, before we discuss Adani Power shares, here’s a quick update.

• Adani Power stocks received a boost after MSCI lifted restrictions in August 2024
• Adani Power shares showed a bullish triple bottom pattern at the Rs. 630-650 range
• In June 2024, the stock reached an all-time high of Rs. 890.40
• Adani Power plans to increase its thermal power capacity and integrate renewable energy
• To effectively manage the stock risk, analysts suggest a stop-loss be set

Good news makes way for Adani Group stocks. Morgan Stanley Capital International (MSCI) has lifted the restrictions on the company shares. In its August review, the global index provider announced its return to standard procedures for its index review. This will include updates to the Domestic Inclusion Factor (DIF), Foreign Inclusion Factor (FIF), and Number of Shares (NOS) for Adani Group and related securities.
 

For those who couldn’t keep track, here’s a quick recap of what happened. In February 2023, Adani Power faced a conflict with MSCI after Hindenburg Research's allegations led MSCI to impose restrictions on how Adani Group stocks were treated in its indices. These restrictions, because of the “free float status”, impacted the inclusion of Adani Power shares. However, in August 2024, MSCI lifted the restrictions, resuming normal operations and share adjustments.

Adani Group stocks soared to record highs by February 2023 but plunged sharply after the Hindenburg report. On average, stock prices fell by 65%, with some dropping by 85%, leading Adani Group to scale back several projects.
 

In June 2024, Adani Power shares experienced a significant surge, reaching an all-time high of Rs. 890.40, marking a 17.68% increase. Trading volume also spiked, with approximately 30.41 lakh shares changing hands on the BSE, more than three times the two-week average of 8.60 lakh shares.
 

As far as Adani Power goes, there has been a decline from where the shares were. Recently, the stocks came to an important support zone where it has established a triple bottom pattern in the Rs. 630-650 range. This triple bottom formation, particularly when seen at a prior demand area, is generally considered a bullish indicator. It suggests that the stock has encountered robust support at these levels and could be poised for a potential rebound.
 

Let us take a look at some of the key aspects that affect the Adani Power share prices:

• High valuation of Adani Group
  Adani Group's valuation is Rs. 9.9 trillion, supported by acquiring undervalued assets, leveraging stock values, and attracting major investors.
• Impact of inflation
  Lower inflation generally boosts valuation, while higher inflation can decrease it.
• Changing trends
  Adani Group stocks often generate significant investor interest, creating upward momentum.
• Financial strength
  The company's performance can be overshadowed by broader market trends and the economic strength of competitors.
• Demographics drive stock values
  Stock values are impacted by demographics, with younger and middle-aged populations typically investing more, while older investors might exit the market for retirement.

In the first week of September 2024, Adani Power share prices experienced a surge in trading activity on the BSE. About 10.08 lakh shares changed hands. This is more than three times the two-week average of 3.01 lakh shares. The turnover reached Rs. 66.67 crore, bringing the company's market capitalisation to Rs. 2,58,588.47 crore.
 

Adani Power recognises that the rapidly growing energy demand requires expanding thermal power capacity. The company plans to increase the integration of renewable energy sources. Here’s a look at its plan:
 

• Power generation capacity expected to increase from 445 GW to 900 GW by FY 2032
• Non-fossil generation capacity aimed to reach 500 GW by FY 2030, with 253 GW needed from coal
• Potential to add 80-90 GW of coal-based capacity by FY 2032, up from the current 217 GW.

Adani Power has reached record highs and appears likely to keep rising. However, a potential correction or profit-taking can't be dismissed. As an investor, discretion and research are highly recommended. These indicators collectively position Adani Power as a promising buy at current levels. Market advisors suggest a long position within the Rs. 660-670 range, aiming for a target of Rs. 750. To effectively manage Adani Power stocks risk, experts advise that a stop-loss be set at Rs. 625 on a daily closing basis to shield against any potential downside.