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Impact of Hindenburg-Adani Saga on Mutual Funds

8 min read • Published 13 January 2023
Written by Anshul Gupta

It would be an understatement to say that the Hindenburg report caused chaos in Indian markets. Since the start of the war of words between Asia’s wealthiest man and an American financial research firm, investor apathy towards everything Adani has left the conglomerate suffering.

Share price movement of Adani Group stocks after the Hindenburg Report
Adani Total Gas suffered the most.
CompanyPrice (₹) as on January 24, 2023Price (₹) as on February 8, 2023Change (%)
Adani Enterprises3,442.02,164.3-37.12
Adani Green Energy1,916.8802.5-58.14
Adani Ports and SEZ761.2599.5-21.25
Adani Power274.7181.9-33.78
Adani Total Gas3,891.81,391.0-64.26
Adani Transmission2,762.21,314.8-52.40
Adani Wilmar572.7418.8-26.87
Ambuja Cements499.0384.7-22.92
ACC2,335.71,973.8-15.50
Source: TradingView

So why have the prices of these stocks tumbled in a matter of a few days? Let us find out the same in the following paragraphs.

The Hindenburg-Adani Saga

A lot has changed for the ports-to-power giant ten days after Hindenburg Research issued its damning report accusing it of stock manipulation and accounting fraud. As of February 8, Adani Group businesses have lost around ₹8.8 lakh crore in market capitalisation since January 24. The Adani Group’s overall market capitalisation fell to ₹10.4 lakh crore on February 8 from ₹19.2 lakh crore on January 24, when Hindenburg Research released its report.

How It All Started

Hindenburg Research, an investment research firm with a focus on activist short-selling located in New York, presented a study on the Adani Group of Companies on January 24, accusing the group of stock manipulation and accounting fraud spanning decades. Based on its findings, Hindenburg Research initiated short positions in Adani group entities through US traded bonds and non Indian traded derivative instruments.However, the size of its bets and instruments used wasn’t revealed. The Securities and Exchange Board of India (SEBI) defines short selling as the sale of a security or share that the seller does not hold. Short selling occurs when an investor sells borrowed shares in the market in the hopes of repurchasing them at a lower price.

What Does This Report Say?

The US-based research company, led by Nathan Anderson, has made strong allegations of gross misconduct against the group. One of the prime allegations is that the key-listed Adani Group firms had significant debt, jeopardising the whole group. According to the report, “Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure.”

Moreover, they have also made allegations pertaining to stock manipulation and accounting fraud. The report stated, “Evidence of stock manipulation in Adani listed companies shouldn’t come as a surprise. SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises’ stock.”

“Adani Group’s obvious accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls. Listed Adani companies have seen sustained turnover in the Chief Financial Officer (CFO) role. For example, Adani Enterprises has had 5 CFOs over the course of 8 years, a key red flag indicating potential accounting issues,” says the report.

Response From Adani Group

In their 413-page response, the Adani Group defended its stance, claiming that the study was a planned attack on India and its growth story rather than an unfair attack on any individual firm.

Adani Group stated, “It is tremendously concerning that the statements of an entity sitting thousands of miles away, with no credibility or ethics, has caused a serious and unprecedented adverse impact on our investors.”

Leaving aside the controversies, investors want to know if they should be concerned. Those who invested directly in Adani group stocks did so on their own, but what about those who bought mutual funds?

Impact Of Hindenburg-Adani Saga on Mutual Funds

There are 354 funds (open and closed-ended) exposed to Adani group stocks, with 117 being passively managed (index funds and ETFs) and the rest being actively managed funds.

However, among the nine listed Adani group firms, actively managed funds have only invested in Adani Enterprises, Adani Total Gas, Adani Ports & Special Economic Zone, Adani Green, ACC, and Ambuja Cements.

Fund Houses with one of the highest allocations to Adani Group stocks

In relative exposure to overall equity assets under management (AUM) of particular asset management companies (AMC), Quant Mutual Fund, Taurus Mutual Fund, Shriram Mutual Fund, Tata Mutual Fund and Motilal Oswal Mutual Fund have the highest relative exposure to Adani Group stocks.

Top 5 Fund Houses With Highest Relative Exposure to Adani Group Stocks
Fund HouseTotal Equity AUM (₹)Amount of AUM exposed to Adani Group stocks (₹)Exposure to Adani Group stocks (%)
Taurus Mutual Fund532.541.687.83
Quant Mutual Fund16,539.81,276.407.72
NJ Mutual Fund4,212.8312.077.41
Tata Mutual Fund48,213.41,548.753.21
Motilal Oswal Mutual Fund28,869.2761.242.64
Source: RupeeVestData as on December 2022

Further, the following table shows the top 5 Mutual Fund houses with highest absolute exposure to the Adani group:

Top 5 Fund Houses With Highest Absolute Exposure to Adani Group Stocks
Fund HouseTotal Equity AUM (₹)Exposure to Adani Group stocks (%)Amount of AUM exposed to Adani Group stocks (₹)
SBI Mutual Fund4,74,527.11.065,048.87
Kotak Mutual Fund1,33,381.71.752,329.78
UTI Mutual Fund1,55,608.41.412,195.09
Nippon India Mutual Fund1,62,737.51.292,094.16
ICICI Prudential Mutual Fund2,79,054.10.752,089.00
Source: RupeeVestData as on December 2022

Actively managed funds having one of the highest allocations to Adani Group stocks

Top 5 Funds With Highest Relative Exposure to Adani Group Stocks
Fund NameTotal Fund AUM (₹)Exposure to Adani Group stocks (%)Amount of AUM exposed to Adani Group stocks (₹)
Quant Infrastructure Fund1,707.68.04137.29
Quant Large Cap Fund263.97.9621.01
Mahindra Manulife Equity Savings Fund435.27.7033.51
HDFC Housing Opportunities Fund1,194.07.5289.79
SBI Magnum Comma Fund891.67.1563.75
Source: RupeeVestData as on December 2022
Top 5 Actively Managed Funds With Highest Absolute Exposure to Adani Group Stocks
Fund NameTotal AUM (₹)Exposure to Adani Group stocks (%)Amount of AUM exposed to Adani Group stocks (₹)
Kotak Balanced Advantage Fund43,335.32.08901.37
Motilal Oswal Flexi Cap Fund8,910.65.88523.94
Mirae Asset Large Cap Fund34,194.31.36465.04
Quant Active Fund7,088.05.78409.33
Nippon India Tax Saver (ELSS) Fund23,848.61.56372.04
Source: RupeeVestData as on December 2022
Top 5 Index Funds or ETFs With Highest Absolute Exposure to Adani Group Stocks
Fund NameTotal AUM (₹)Exposure to Adani Group stocks (%)Amount of AUM exposed to Adani Group stocks (₹)
SBI Nifty 50 ETF3,09,701.41.053,236.38
UTI Nifty 50 ETF80,904.21.05845.45
Nippon India ETF Nifty Next 50 Junior BeES15,401.52.82434.01
ICICI Pru Nifty Next 50 Index Fund12,925.52.82363.98
UTI Nifty Next 50 Index Fund10,439.52.82294.39
Source: RupeeVestData as on December 2022

Overall Impact of Adani Group Stocks on Mutual Fund Industry

Although the impact is visible at the micro level, at the macro level, the impact is minimal. It is more evident in the below table.

CompanyHolding by Equity MF scheme (₹ in crs)Exposure as % Total Equity MF AUM (%)Returns (%)Overall Impact (%)
Adani Enterprises4,549.630.30-37.12-0.11
Adani Green Energy373.840.02-58.14-0.01
Adani Power5.530.00-33.780.00
Adani Ports and SEZ7,786.260.51-21.25-0.11
Adani Total Gas557.080.04-64.26-0.02
Adani Transmission395.000.03-52.40-0.01
Adani Wilmar14.700.00-26.870.00
ACC3,662.290.24-15.50-0.04
Ambuja Cements7,922.460.52-22.92-0.12
Total Exposure25,266.79
Returns are for the period from January 24, 2023 to February 8, 2023AUM is as on December 2022

As seen from the above table, the impact of the exposure to Adani Group stocks at the industry level is relatively minimal. The exposure to overall equity AUM is at most 1.66%. Speaking about overall mutual fund industry exposure, then it is not more than 0.63%.

What Should Mutual Fund Investors Do?

There is an anticipation that the stocks of the Adani Group will remain volatile at least in the short term. Suppose you have invested in actively managed schemes with a significant allocation to Adani Group stocks. In that case, this might have a significant downward impact on their net asset values (NAVs). However, because of their positions in diverse companies in the scheme’s portfolio, active fund managers can reduce the allocation to Adani Group stocks and may even diversify the risk. Also, because of a broader impact on the stock market of this event, few other stocks have also been affected as a collateral damage which also might have impacted your Mutual Fund Portfolio.

Suppose you would like to avoid your mutual fund scheme’s exposure to Adani Group businesses. In that case, consider withdrawing from it, as the Hindenburg investigation has highlighted serious concerns about its governance and accounting practices. Furthermore, depending on the size of your investment portfolio, you must keep roughly 4-5 good quality schemes in your portfolio to provide appropriate diversification among investing styles and strategies.

Frequently Asked Questions (FAQs)

Which mutual funds invest in Adani?

Around 354 mutual funds have invested in Adani Group stocks. Moreover, Quant Infrastructure Fund, Quant Large Cap Fund, Mahindra Manulife Equity Savings Fund, HDFC Housing Opportunities Fund, and SBI Magnum Comma Fund have the highest relative exposure to them. On an Absolute basis, Kotak Balanced Advantage Fund, Motilal Oswal Flexi Cap Fund, Mirae Asset Large Cap Fund, Quant Active Fund, and Nippon India Tax Saver (ELSS) Fund have one of the highest allocations to Adani Group stocks.

Which Adani shares have impacted the most?

Since the release of the report from the Hindenburg Research on January 24, 2023 up to February 8, 2023, Adani Total Gas has lost the most, falling 64%, followed by Adani Green Energy and Adani Transmission, which plummeted 58.14% and 52.4%, respectively.

Why are Adani shares falling continuously?

Hindenburg Research, an investment research firm focused on activist short-selling, has accused Adani Group of market manipulation and accounting fraud. Being an activist short-seller, Hindenburg Research initiated short positions in Adani group entities through US-traded bonds and non-Indian traded derivative instruments based on its findings.

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Anshul Gupta

Co-Founder
IIT Roorkee Alumnus and CFA with experience of structuring debt products worth more than 15000Cr for institutional and retail investors.

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