Explained: Why free fall in Adani Group Stocks
Stocks of Adani group companies tumbled by about 5% to 25% on Monday after the National Securities Depository Ltd (NSDL) froze the accounts of three foreign funds that are among the top stakeholders in the firms.
An account freeze means the funds would not be able to sell existing securities nor buy new ones.
The conglomerate's flagship company, Adani Enterprises, fell as much as 25%, its sharpest fall in nearly a decade.
The NSDL has frozen the accounts of Albula Investment Fund, Cresta Fund and APMS Investment Fund.
The three funds are among the top twelve investors and owned about 2.1% to 8.91% stakes in five Adani Group companies as of March 31, 2020, annual investor presentations show.
The value of their stakes in Adani Power, Adani Enterprises, Adani Green, Adani Transmission and Adani Total Gas Ltd increased over ten-fold since end-March 2020 to Rs 56,932 crore ($7.78 billion) as of Friday.
This is in line with a broad rally in shares of Adani Group companies over the period that has made chairman Gautam Adani the second richest Asian, behind Mukesh Ambani who is chairman of oil-to-telecom conglomerate Reliance Industries.
Shares of Adani Enterprises have risen over 10-fold in the past year to Friday, while Adani Transmission shares have gained more than eight-fold and Adani Total Gas Ltd shares have jumped 1,114%.
Adani Ports Ltd has risen 148%, while Adani Green has grown 267% and Adani Power has jumped nearly four-fold over the past year.
An Adani spokesperson did not immediately respond to a request seeking comment. India's securities regulator Sebi and NSDL did not respond to requests seeking comment.
Why Adani group shares fell sharply? Here's how
It is a blow to billionaire industrialist Gautam Adani, whose companies have witnessed a meteoric rise on the domestic stock market since last year.
The foreign funds that have been frozen by NSDL hold stakes worth Rs 43,500 crore in four Adani group companies — Adani Enterprises, Adani Green Energy, Adani Total Gas and Adani Transmission.
Officials at custodian banks that handle foreign investors said that the action has been taken against the foreign funds due to insufficient disclosure of information regarding beneficial ownership under the Prevention of Money Laundering Act (PMLA), was reported.
The accounts of Albula Investment Fund, Cresta Fund and APMS Investment Fund have been frozen on or before May 31, as per information on NSDL's website. An account freeze means that these foreign funds will not be able to sell any of the existing securities or buy any.
The report, quoting officials, said that custodians usually warn clients of such action, but the accounts can be frozen if the associated FPIs do not respond or fail to comply. However, a statement from the Adani Group regarding the matter is awaited.
The development seems to have spooked investors of Adani group companies that have seen a meteoric rise since 2020. A correction in the short-to-medium term can be expected, according to stock market analysts.