Markets ended more than 1% lower to hit a three-month low on Friday as a short-seller attack on Adani Group companies triggered a selloff in its shares and of the banks, wiping off a combined $48 billion in the conglomerate's market value over two days.
The Nifty 50 index was down 1.61% at 17,604.35 at close, while the S&P BSE Sensex fell 1.45% to 59,330.90, trimming some losses in the last few minutes of trading after having hit over 2% lower earlier in the session.
The indexes settled more than 2% lower each in the truncated week, their most in a month, after two straight weekly gains.
The sell-off in equities was triggered by US short-seller Hindenburg Research's report on Wednesday that flagged concerns about the Adani Group’s debt levels and use of tax havens.
Stocks of Adani Transmission and Adani Green Energy tumbled 20% each, while Adani Power dropped 5%, with all three hitting their lower circuit.
Adani Enterprises and Adani Ports were the worst performers on the Nifty 50, closing 18.5% and 16.3%, respectively. Heavyweights State Bank of India and ICICI Bank led losses with a decline of 5% and 4.5%, respectively.
Adani Enterprises closed at 2,761.45 rupees, well below the lower end of the price band for its $2.45 billion follow-on public offering (FPO).
"It has clearly dented overall investor sentiment. The nervousness has led to a fall in stocks across the board. When a selloff of this kind of magnitude is seen in a very short span of time, investors sell other stocks where they are in the money," said Saurabh Jain, assistant vice-president, research, SMC Global Securities.
Meanwhile, India's market regulator will study the Hindenburg Research report to add to its own ongoing preliminary investigation into the group's foreign portfolio investors, two sources told Reuters on Friday.
Financials sector fell 2.5% to their three-month lows even though brokerages said banks’ exposure to the Adani Group was within manageable limits.
Auto stocks were a few bright spots with a 1% rise, with Nifty 50 members Bajaj Auto and Tata Motors advancing 6% each after their strong quarterly results.