Adani Stocks & Mutual Funds: Which Fund Has the Most and Least Exposure?

Adani Group

Adani Group spans sectors such as energy, infrastructure, ports, and green technology. Stocks like Adani Enterprises, Adani Ports, Adani Power, and Adani Green Energy have been significant contributors to India's market indices over recent years.

However, the controversies have raised concerns about overvaluation and governance practices, leading to heightened market volatility.

[Read: Bribery Charges: Are Your Mutual Funds Holding Adani Stocks?]

The Real Story

Billionaire Gautam Adani, his nephew Sagar Adani, and several others associated with Adani Green Energy have been accused by the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) of orchestrating a bribery scheme worth USD 265 million.

Adani Group and its associates have been accused of paying bribes to Indian officials between 2020 and 2024 to secure lucrative renewable energy contracts and misleading U.S. investors while raising USD 2 billion through loans and bonds.

These allegations have led to significant repercussions, including the cancellation of a multibillion-dollar airport deal in Kenya, a halt on fresh investments by France's Total Energies, and potential contract cancellations by the Andhra Pradesh government. Rating agency Fitch has also placed some Adani bonds on negative watch due to the bribery charges.

This controversy comes on the heels of earlier allegations by Hindenburg Research in January 2023, accusing the Adani Group of stock manipulation, accounting fraud, and improper use of offshore tax havens. While SEBI's ongoing investigation has not yet found regulatory failures regarding stock price manipulation, it has not issued a final report.

The Adani Group has denied all allegations, describing them as baseless, but the accusations have led to a significant drop in the market capitalization of its listed companies.

What's Happening in the Market with Adani Stocks?

The volatility in Adani stocks has extended to the broader equity market, creating ripple effects in market indices and investor sentiment. Mutual fund investors, in particular, have become increasingly curious about how their investments might be impacted, especially if their chosen schemes have substantial exposure to Adani Group stocks.

Impact of Adani Stocks on Market Volatility

1. Pressure on Benchmark Indices:

Adani Group stocks, being components of key indices like the NIFTY 50 and NIFTY Next 50, have had a direct impact on index performance. For instance, sharp declines in Adani Enterprises or Adani Ports have dragged down indices, impacting passive funds that replicate these indices.

2. Heightened Investor Anxiety:

Mutual fund investors have grown concerned about exposure to Adani stocks, particularly in funds focusing on large-cap and infrastructure-heavy sectors. This anxiety has translated into increased volatility as investors reallocate funds to schemes with lower exposure.

3. Scrutiny by Regulators:

Regulatory investigations into the Adani Group have caused fluctuations in stock prices, creating a challenging environment for fund managers to navigate.

4. Sector-Wise Impact:

Adani stocks dominate sectors like renewable energy and infrastructure, leading to concentrated risks in sectoral and thematic mutual funds. A decline in these stocks can disproportionately affect funds targeting these areas.

The situation has highlighted the importance of analysing mutual fund portfolios, as significant exposure to such volatile stocks can amplify portfolio risks.

Analysing the exposure of mutual funds to Adani stocks is crucial for investors, especially in the current market environment. Adani Group stocks have experienced heightened volatility due to allegations of financial mismanagement and ongoing regulatory scrutiny.

Mutual funds with significant holdings in these stocks may exhibit higher risk, particularly during periods of market uncertainty. For investors, this makes it imperative to evaluate their portfolios and understand how exposed they are to potential price swings in these stocks.

Additionally, sectoral and thematic funds, particularly those focusing on infrastructure or renewable energy, may also hold substantial positions in Adani Enterprises, Adani Ports, or Adani Green Energy. These funds aim to capture the long-term growth potential of these sectors, but this comes with inherent concentration risks.

Here are the two funds that have garnered significant attention recently - Tata Quant Fund and the ICICI Prudential Quant Fund, both employing a quantitative approach to stock selection.

However, they stand at opposite ends of the spectrum when it comes to exposure to Adani Group stocks, with Tata Quant Fund holding the highest allocation and ICICI Prudential Quant Fund having minimal exposure. This divergence has sparked curiosity among investors about their strategies, performance, and suitability.

In this article, we will explore the key differences and similarities between these two funds, examine their performance, and analyze how their Adani stock exposure impacts their risk and return profiles.

Tata Quant Fund

Launched in January 2020, the Tata Quant Fund aims to leverage quantitative models for active stock selection. It aims to deliver long-term capital appreciation by focusing on factors such as growth potential, valuation metrics, and market trends.

The fund currently holds an AUM of Rs 67.78 crores. As of the latest portfolio disclosure, Tata Quant Fund holds the highest exposure to Adani Group stocks. This high allocation aligns with the fund's strategy of capturing growth opportunities in infrastructure and renewable energy sectors.

The fund's high exposure to Adani stocks has led to periods of significant volatility. While Adani stocks have contributed to gains during market rallies, the recent controversies surrounding the Adani Group have increased the risk profile of the Tata Quant Fund.

Any negative news regarding the Adani Group could lead to sharp declines in the fund's NAV, impacting investor returns. Tata Quant Fund is suitable for investors who are capable of bearing a high-risk appetite and looking to capitalize on potential growth in infrastructure and renewable energy sectors.

ICICI Prudential Quant Fund

The ICICI Pru Quant Fund employs a similar quantitative strategy but with a more diversified and conservative approach. The fund avoids concentrated bets, focusing instead on spreading risk across sectors and stocks.

Launched in December 2020, the scheme currently holds an allocation of Rs 95.85 crores. ICICI Prudential Quant Fund has negligible exposure to Adani Group stocks. This decision reflects the fund manager's preference for a diversified portfolio and cautious stance on stocks that may face governance or market perception risks.

With its diversified approach and minimal Adani exposure, the ICICI Prudential Quant Fund has delivered consistent returns with lower volatility. Its focus on well-governed companies across sectors has contributed to a stable performance.

Minimal exposure to Adani stocks shields the fund from the direct impacts of the controversy. ICICI Pru Quant Fund is suitable for risk-averse investors seeking stable and consistent returns. Ideal for those preferring a diversified portfolio with minimal exposure to controversial stocks and offers long-term wealth creation with moderate risk.

Risk-Return Profile of the Schemes

Both the Tata Quant Fund and ICICI Prudential Quant Fund share a key similarity in their investment approach, as they belong to the quant fund category. These funds leverage advanced quantitative models and algorithms to select stocks, making their decisions free from emotional or human biases.

By relying on data-driven strategies and predefined rules, both funds aim to identify opportunities that align with their growth and risk parameters, offering investors a systematic and disciplined approach to equity investing.

In terms of market performance, the quant-based strategy has demonstrated varied results depending on market conditions. During periods of high volatility or significant market disruptions, such as the recent controversies surrounding Adani stocks, these funds may face challenges if their models are heavily exposed to impacted sectors or stocks.

When it comes to returns, both funds aim to deliver consistent growth, but their outcomes differ due to varying portfolio compositions. Tata Quant Fund, with its higher exposure to Adani stocks, has experienced notable swings in NAV, reflecting the high-risk, high-reward nature of its portfolio. Conversely, ICICI Prudential Quant Fund, with its more diversified holdings and minimal Adani exposure, has provided relatively stable returns, appealing to investors with a lower risk appetite.

This distinction highlights how even within the same category, fund performance can vary significantly based on sectoral and stock-specific allocations.

The choice between the two depends on an investor's risk tolerance, market outlook, and preference for growth versus stability. Investors keen on participating in the infrastructure and renewable energy growth story may find the Tata Quant Fund appealing, despite its heightened risk. On the other hand, those looking for a balanced, controversy-free portfolio might gravitate towards the ICICI Prudential Quant Fund.

Regardless of the choice, it is essential to conduct thorough research, consider one's financial goals, and consult a financial advisor before investing.

How Should Investors React to the Adani Controversy?

Investors often find it challenging to respond to controversies like the one surrounding Adani Group.

• Check your mutual fund statements for Adani stock exposure. Most fund houses provide monthly portfolio disclosures that indicate holdings and weights.

• Index funds and sectoral funds may have mandates that compel them to hold certain stocks regardless of controversies. Be aware of these mandates when investing.

• Avoid concentrating your investments in funds with high sectoral or stock-specific risks. Diversification across fund categories can mitigate risks.

• While short-term volatility can be unnerving, it's essential to focus on long-term investment goals. Avoid panic-driven decisions.

• Consult a financial advisor if you are unsure about the implications of Adani's exposure on your portfolio.

To Summarise...

The controversy surrounding Adani stocks serves as a reminder of the risks associated with concentrated investments, especially in companies with governance challenges. As a mutual fund investor, staying informed about the holdings of your chosen schemes and their alignment with your financial goals is crucial.

Use this opportunity to evaluate your portfolio and ensure that it reflects a balanced and well-thought-out investment strategy.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.