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Adani Group stocks crash as shareholding doubts get raised officially

The Economic Times reported that National Securities Depository Ltd has frozen the accounts of three of the foreign investment firms that held Adani Group stocks. (Photo: Mint) Premium
The Economic Times reported that National Securities Depository Ltd has frozen the accounts of three of the foreign investment firms that held Adani Group stocks. (Photo: Mint)

  • While it isn’t clear how NSDL’s action will impact these firms, investors seem to be worried that the increased scrutiny could potentially result in changes in shareholding pattern, which may mean an increase in free float. In any case, the regulatory glare in itself is a concern

Adani Group stocks had easily topped the league tables with regards to post-covid market returns. As pointed out in these pages in March, five of the top 10 stocks in terms of returns post-covid were from the Adani Group.

An open secret in the markets was that the sharp rise in these stocks was due to a very low free float in most of these stocks. Promoter holding is around 75% for most stocks in the group, and a large portion of the remainder is held by a set of foreign investors who are common investors in some group firms. This meant that the effective free float was very low, creating an abnormal scarcity in the company’s shares. While many news reports have raised questions about this unique set of foreign investors, none of them had an impact on the rally in Adani Group stocks.

But on Monday, for the first time, doubts about shareholding were raised officially. The Economic Times reported that National Securities Depository Ltd (NSDL) has frozen the accounts of three of the foreign investment firms that held Adani Group stocks. The report added that the freeze could be because of insufficient disclosure of information regarding beneficial ownership.

This has resulted in heavy selling in stocks of all the firms in the group.

The Adani Group has clarified that the accounts of the three firms in question are not frozen as of date. However, it should be noted that the NSDL website lists details of firms whose accounts are frozen as of 31 May, and included the names of the three firms. While the freeze may have lifted, the official action has jolted investors.

While it isn’t clear how NSDL’s action will impact these firms, investors seem to be worried that the increased scrutiny could potentially result in changes in shareholding pattern, which may mean an increase in free float. In any case, the regulatory glare in itself is a concern.

The three firms whose accounts were frozen by NSDL, according to the ET report, are Albula Investment Fund Ltd, Apms Investment Fund Ltd and Cresta Fund Ltd.

Apms Investment Fund said in a statement that the NSDL entry shows only a technical account-level freeze, and that its global trading operations continue as normal.

As per data collated by Trendlyne.com, Albula Investment Fund had 18 disclosed holdings as of March 2021 and 95% of its portfolio value came from just four holdings in Adani Group firms.

Apms Investment Fund had 11 disclosed holdings at last count and 96% of its portfolio value came from four holdings in Adani Group firms. Likewise, Cresta had 14 disclosed holdings in end-March, of which holdings in three Adani Group firms accounted for 97% of its portfolio value.

Of the three firms, only Cresta appears to have completely disposed of holdings in some Adani Group stocks. It held a 2.3% stake in Adani Green Energy Ltd and a 1.3% stake in Adani Power Ltd a year ago, but that has gradually come down, and these aren’t part of the fund’s disclosed holdings as of March 2021.

Interestingly, these three aren’t the only funds that have a high exposure to the group’s stocks.

In terms of number of stocks, Elara India Opportunities Fund Limited seems to have a diversified portfolio with 35 disclosed holdings as of March 2021. But in value terms, nearly 98% of its portfolio consisted of holdings in five Adani Group stocks.

Asia Investment Corporation (Mauritius) Ltd held three Adani stocks, which accounted for 99% of its six-stock portfolio. And Vespera Fund Ltd held four stocks from the Group which accounted for over 98% of its 10-stock portfolio.

Another investment firm, Opal Investment Pvt. Ltd, has held an over 5% stake in Adani Power for years. This accounts for over 99% of the value of its two-stock portfolio.

These funds cumulatively have a stake of around 10-15% in Adani Group firms, barring Adani Ports, where their disclosed holding is nil. According to shareholding data published by exchanges, only the names of investors with holdings of above 1% are published.

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