Why Are Institutional Investors Shying Away From Adani Stocks?

Shares of the Adani Group have been in the spotlight since the company announced the Rs 20,0000 crore follow-up price offer. On January 25, US-based research firm Hindenburg published a report alleging that the Adani group had "engaged in a blatant stock manipulation and accounting fraud scheme over the course of decades". Adani Group shares have been performing poorly in the last few days in the aftermath of the release of Hindenburg Research. Here we evaluated how the how fall will impact MF investors .

According to reports, the mutual fund industry had an exposure of Rs 26,388 crore as of December-end towards nine Adani Group companies. However, when we delved deeper into the data, we found no significant exposures of actively managed funds in the stocks. In the last one month, funds have reduced exposure in Adani Enterprises by 27 per cent. In November, the exposure in Adani Enterprises was Rs 6973.80 crore which was reduced to Rs 5,097 crore in December 2022. Market experts attribute higher valuation to lower exposure in the group by MFs. "Most Indian mutual funds stayed away from Adani Group stocks, as they were "hard to value" or expensive," says Shankar Sharma, vice chairman & joint managing director of First Global, in his tweet.

It is important to note that Adani Enterprises are majorly part of passively managed index funds as it is part of some major indices such as Nifty 50. There is no significant holding in any of the actively managed funds. There are a total of 109 schemes in the Adani Enterprises Limited distributed under 31 fund houses. A couple of balanced advantage funds have exposure in Adani Enterprises, but it is minuscule.

The major asset management companies under Adani Enterprises with the highest number of schemes include HDFC Mutual Fund, ICICI Pru Mutual Fund, DSP Mutual Fund, Aditya Birla SL Mutual Fund, and SBI Mutual Fund. While Adani Enterprises had exposure worth Rs 5,097 as of December 2022, among the 31 mutual funds, SBI Mutual Fund had the highest exposure, with the biggest investment at Rs 2,776 crore during the same period. UTI Mutual Fund had an investment of Rs 863 crore as of December 2022, while Kotak Mutual Fund had invested Rs 494 crore during the corresponding period. ICICI Pru Mutual Fund had an investment exposure worth Rs 241 crore. Nippon India Mutual Fund had holdings worth Rs 282 crore in Adani Enterprises.

As per reports, among the Adani Group companies, Ambuja Cement and Adani Ports, and SEZ had the maximum investment of Rs 8,204 crore and Rs 7,996 crore, respectively, from mutual funds. Importantly, their investments in Adani Enterprises and ACC amounted to Rs 5,097 crore and Rs 3,744 crore, respectively. Additionally, in the Adani Total Gas and Adani Transmission, the mutual funds' investments stood at Rs 557 crore and Rs 395 crore, respectively.

Even as the Adani Group on January 29 called the allegations allayed in the Hindenburg report a "calculated attack" on India, noting that it was "nothing but a lie." Adani Group said the report was driven by "an ulterior motive" to "create a false market" to allow the US firm to make financial gains. "This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity, and quality of Indian institutions, and the growth story and ambition of India," it said.

Meanwhile, in another development, Adani Enterprises' follow-on public offer (FPO ) saw a tepid response from investors on the back of the ongoing saga between Adani Group and US-based short seller Hindenburg. The issue was subscribed only 7 per cent at 12.15 pm.