Explained: Why Most Mutual Funds Have Stayed Away From Investing In Adani Group¡¯s Stocks

Last week's Hindenburg report has rattled the Adani Group stocks, besides hurting the personal wealth of the group's chairman, Gautam Adani. But amidst the bloodbath in Adani Group's shares, retail investors might be worried whether their mutual fund houses had any exposure to Adani Group stocks or not.

But surprisingly, despite the bull run that Adani group stocks have had in the past few years, most mutual funds have opted to stay away from investing in Adani group stocks.

Most Mutual Funds Stay Away From Adani Group Stocks

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Yes, most mutual funds have chosen not to invest in Adani Group stocks, and even among those that have, the proportion in the Group's shareholding pattern is very low, usually around or below 1%.

Here it's important to remember that the Hindenburg report mentioned how highly overvalued most Adani Group stocks are, which are like a bubble waiting to burst. Perhaps that is why most mutual funds, even the big ones, have largely stayed away from putting money into Adani Group stocks.

Moreover, a major reason behind most of the investments by MFs is that Adani Group stocks are part of indices,so index schemes and ETFs will have to have exposure to them as they follow the index stocks for their investment portfolios, and that's why they have to compulsorily invest in the stocks included in the indices so as to match the performance of the indices.

It's also noteworthy that mutual funds report their portfolios for the previous month, so the latest data available is for December 2022, which we shall look at.

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Shareholding Pattern Of Adani Group Stocks

In the case of Adani Enterprises, mutual funds only have a 1.19% share in its shareholding as of the end of the December 2022 quarter. Since March 2022, mutual funds' shareholdings in this stock have fallen in every quarter, from 2% in the March quarter to 1.83% in the May 2022 quarter, 1.79% in the June quarter, and 1.27% in the September quarter.

In the case of Adani Power Ltd., mutual funds neither had nor have any investments in this stock, and no role in the shareholding of the company.

In the case of Adani Ports and Special Economic Zone Ltd., mutual funds have a 4.4% share in its shareholding as of the end of the December 2022 quarter. Since December 2021, mutual funds' shareholdings in this stock have fallen in every quarter, from 5.2% in the December 2021 quarter to 4.7% in October 2022.

In the case of Adani Transmission Ltd., mutual funds have just a 0.13% share in its shareholding as of the end of the December 2022 quarter. and the investment has remained at this tiny level for many years.

In the case of Adani Green Energy Ltd., mutual funds own just 0.12% of its shares as of the end of the December 2022 quarter. and the investment has remained at this tiny level for many years.

In case of Adani Wilmar Ltd, mutual funds have a tiny 0.02% share in its shareholding as at the end of December 2022 quarter. Looking back the last year, mutual funds have drastically reduced their investments in this stock, from 0.72% in February 2022 to zero in June and Sept quarter 2022, before upping it a bit to 0.02% in last quarter.

In case of Adani Total Gas Ltd, mutual funds have 0.13% share in its shareholding as at the end of December 2022 quarter. and the investment was much lower at 0.02%-0.04% in past few quarters of 2022. (data from trendlyne)

Mutual Funds Investments In Other Companies

To put things into perspective, mutual funds' investments in some other giant companies is higher than what they have in Adani group stocks. For instance, mutual funds have 5.81% share in Reliance Industries, 3.31% in TCS, 8.18% in Tata Steel, Piramal Enterprises 2.07%, Godrej Industries 2.11%, 3.95% in HUL, Hindalco Industries Ltd 11.09%, Coal India Ltd.8.78%, Redington Ltd 11.78%. (data from trendlyne)

Also Read: Explained: What Is Short Selling & Why Has Hindenburg Taken A Short Position In Adani Group

Mutual Funds' Exposure To Adani Group Stocks

trendlyne

Equity mutual funds are exposed to the tune of Rs 26,285 crore to Adani Group shares. The highest exposure has been to Ambuja Cements, ACC, and Adani Ports, which constitute nearly 60% of the total exposure of mutual funds. Actively managed funds have stayed away from the Adani Group as a whole. Fund managers are sceptical of its valuations and debt overhang, as per Trendlyne.

Index funds, which are passive in nature, constitute nearly 28% of the exposure. As long as Adani stocks are part of the Nifty Index, ETFs cannot sell these stocks. Adani Ports and Adani Enterprises are part of the Nifty 50, while Adani Green and Adani Transmission find their place in the Nifty Next 50. Index funds are followed by arbitrage funds, which constitute nearly 23% of total mutual fund exposure to the Adani Group. These are mostly algorithm-driven, with minimal human intervention.

Which Mutual Funds Have Invested In Adani Group?

trendlyne

As per Trendlyne data reflecting December 2022 figures, among fund houses, Quant Fund (11.07%) and Taurus Asset Management (10.90%) will have the biggest impact on NAV due to the Adani Group fallout. While SEBI does not allow mutual funds to invest more than 10% of their portfolio in a single issuer, the guidelines are not clear when it comes to group entities.

Most big fund houses like HDFC, Axis, ICICI and SBI have stayed away from Adani Group stocks, limiting their exposure below 4% for big fund houses.

Motilal Oswal and Kotak Mahindra have been the exceptions, with 5.31% and 4.54% exposure, respectively. Equity mutual funds have an exposure of 2.39%.

Nifty 50 index ETFs have exposure of 2.09%, whereas Nifty Next 50 ETFs have 14%. The recent run-up of Adani Group stocks has led to higher exposure through ETFs.

Funds with greater than 10%+ exposure have see a bigger drop in Net Asset Value

trendlyne

Among actively managed funds, Quant schemes feature in funds with greater than 10% exposure to Adani Group. Mutual funds are designed to diversify investments, so even a concentrated 15-stock portfolio will not have more than 6-8% exposure to a single group.

Schemes with 10%+ exposure have seen their NAV drop by 3-4%, considering the recent rout in Adani's stocks. Even savings schemes, which are considered conservative and risk-averse, have seen a high degree of exposure to a single group.

Also Read: How Investing In Stocks Differs From Mutual Funds

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