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DNA Explainer: Why foreign funds linked to Adani Group companies are under the scanner

Reports of skewed investments and market manipulation continue to plague the Adani Group after Monday’s meltdown,

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DNA Explainer: Why foreign funds linked to Adani Group companies are under the scanner
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Despite the National Security Depository Limited’s (NSDL) clarification on reports that three foreign funds with investments in the Adani Group were “held in active status,” market uncertainty prevails around the Gautam Adani-led port-to-energy conglomerate. 

The three foreign funds reported to have been frozen by the NSDL are Albula Investment, APMS Investment and Cresta Fund. Collectively, they hold Rs 43,500 crore worth of shares in four Adani Group companies. The three Foreign Portfolio Investors (FPIs) are all registered on the same address in Port Louis, Mauritius.

The NSDL website still shows these funds as frozen.

Why do the funds still appear frozen?

As per latest reports, the three funds were frozen by the NSDL in a different matter, back in June 2016. The freezing of funds was ordered by the Securities and Exchange Board of India (SEBI). As per an anonymous senior NSDL official’s statement to a leading media house, the freezing of the funds was done in a case not related to Adani Group companies.

Likewise, an Adani Group statement said that some demat accounts have been in 'Suspended for Debit' status because of a June 16, 2016 order by SEBI.

There are several categories for NSDL freezing accounts. It also often acts on such issues when directed by SEBI.

Reports about skewed investments in the Adani Group

The three foreign funds mentioned above, alongside one more Elara India Opportunities Fund, are in the spotlight for “skewed investment in Adani group companies”, as per a latest report.

The four funds have investment in several firms listed in India besides the Adani group firms. But what has raised eyebrows is their holding in stocks of Adani group which is reportedly between 94.7 and 98 percent. The three foreign funds APMS, Albula and Cresta are registered with SEBI as Category I FPIs.

As per the Adani Group, the three funds have been investors in the group for more than a decade. Their ownership in multiple group companies is a result of demergers.

But the point of contention is that a significant part of the group’s public float is with six funds – Elara, Albula, APMS and Cresta, alongside LIC and Opal. As per market experts, this results in a much lower actual free float in the market. This can potentially hamper the process of fair price discovery.

SEBI is reportedly initiating an investigation into the movement of Adani Group’s stock prices which have grown between 200 and 1000 percent in the last year.

Uncertain investors await greater clarity

Despite the six Adani Group company stocks recovering from the sharp dips on Monday morning, investors remain sceptic. Adani Group has called the reports as “blatantly erroneous” but that hasn’t restored market confidence.

Reports from various corridors of the market suggest that some mutual funds currently hold “very large quantities of Adani groups stocks and some complaints have been filed with SEBI also.”

From Tuesday, four Adani group stocks will now be T2T (Trade 2 Trade) category where intraday trading is not permitted. Any trade needs investors to give or take holding. Yash Gupta Equity Research Associate at Angel Broking advises caution, “We suggest investors be cautious on Adani group stocks, trading at very high valuations compared to peers. Buy on dips or averaging the buy position should be avoided for the time being."

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