Adani Group companies lost as much as $13.4 billion in market value on Monday but recovered much of the losses after Hindenburg Research accused the head of India's market regulator of having links to offshore funds also used by Adani.

The battle between Hindenburg Research and the Adani Group began 18 months ago when the U.S. shortseller alleged Adani improperly used tax havens, accusations which the conglomerate has denied.

At 0850 GMT, the group's flagship firm Adani Enterprises had fallen 1.5%, while Adani Ports, Adani Total Gas, Adani Power, Adani Wilmar and Adani Energy Solutions fell between 0.5% and 3.8%. Adani Green was up 0.3%.

Total losses for the day at that time amounted to about $2 billion after the early plunge.

The stocks had lost $150 billion in value after Hindenburg's first report in January 2023 but shares have recovered much of the losses since then.

Adani Enterprises and Adani Ports were among biggest losers on the blue-chip Nifty 50 index, which reversed course from early losses to last trade up 0.3%.

"The allegations are coming for the second time. Lot of investigations have happened over the last year and a half. This is a temporary, knee-jerk reaction. Things will get back to normalcy," said Sunny Agrawal, head of fundamental equity research at SBICAPS Securities.

Citing whistleblower documents, Hindenburg said on Saturday that Securities and Exchange Board of India (SEBI) Chair Madhabi Puri Buch has a conflict of interest in the Adani matter due to previous investments.

Buch has been SEBI chief since 2022.

"We do not think SEBI can be trusted as an objective arbiter in the Adani matter," Hindenburg said on Saturday.

Buch said the report's allegations were baseless and in a separate statement the regulator said allegations made by Hindenburg Research against the Adani Group have been duly investigated.

Buch termed Hindenburg's allegations as an attempt at "character assassination" following the regulator's enforcement action and "show cause" notice to the shortseller for violating Indian rules. A show cause notice signals an intention to take disciplinary action if satisfactory explanations are not provided.

Adani rejected the allegations against it again on Sunday and said its overseas holding structure was fully transparent. The latest allegations from Hindenburg come at a time when Adani Enterprises is looking to launch a $1 billion share sale by mid-September. Adani Energy raised $1 billion from US investors and sovereign wealth funds earlier this month.

In January 2023, Adani Enterprises had shelved its record $2.5 billion share sale following the first set of allegations by Hindenburg.

"We will likely see a short to medium term sentiment impact on Adani stocks, especially as retail investors are pressurised by the allegations made against SEBI," said Kranthi Bathini, Director, Equity Strategy, WealthMills Securities.

The new set of allegations have also gained political traction, with India's opposition leader Rahul Gandhi saying on X: "The integrity of SEBI, the securities regulator entrusted with safeguarding the wealth of small retail investors, has been gravely compromised by the allegations against its chairperson."

Ruling Bharatiya Janata Party lawmaker Ravi Shankar Prasad said: "Instead of giving a response to the SEBI show cause notice, Hindenburg has issued this report, which is a baseless attack."

"The SEBI and the family (of Buch) have responded, we don't have anything to add to that," he told reporters.

(Reporting by Sethuraman NR, Chris Thomas Hritam Mukherjee, and Bharath Rajeswaran in Bengaluru; Editing by Jamie Freed and Raju Gopalakrishnan)