Bribery Charges: Are Your Mutual Funds Holding Adani Stocks?

According to the charges, Adani and his associates paid bribes to Indian officials to secure lucrative renewable energy contracts. They also accused Adani of misleading US investors by concealing its corrupt practices while raising US $2 billion in loans and bonds. The alleged bribes were paid between 2020 and 2024 to obtain contracts expected to generate billions in profit.

Following the indictment, Kenyan President William Ruto announced his decision to cancel a multibillion-dollar deal that would have seen Adani Group take control of the Jomo Kenyatta International Airport. The deal would have given Adani a 30-year lease for managing, upgrading, and modernising the airport.

Meanwhile, France's Total Energies announced that it will not make any fresh financial contribution as part of its investments in companies of the Adani Group till it gets clarity on accusations. The Andhra Pradesh state government too is mulling steps to cancel a power supply contract linked to the Adani group. Moreover, rating agency Fitch has placed some Adani bonds on negative watch amid the bribery charges

This is not the first time that the Adani Group has found itself in the eye of a storm. If you recall, in January 2023, US-based short-seller 'Hindenburg Research', alleged the Adani Group companies of stock manipulation and accounting fraud. The firm had also accused Adani Group companies of improper extensive use of entities set up in offshore tax havens and expressed concern about high debt levels.

It is noteworthy that SEBI's ongoing investigation into the allegations against the Adani Group did not identify any regulatory failures regarding the stock price manipulation till now, the regulator is yet to submit its final report.

The Adani Group has strongly denied allegations calling them baseless while adding that they are fully compliant with all laws. Nonetheless, the serious allegations sent shock waves, resulting in a massive drop in the market caps of the listed companies of the Adani Group.

Are your mutual funds holding Adani Group stocks?

Several active mutual funds continue to hold significant exposure in the Adani Group companies despite allegations of malpractices and wrongdoings since January 2023. Mutual Funds hold Rs 43,381 crore worth of shares in Adani Group companies such as Adani Ports and SEZ, Adani Power, Enterprises, Adani Energy Solutions, ACC Cements, Ambuja Cements, among others. Of these, actively managed mutual funds had exposure of about Rs 32,300 crore, while the balance was held by passively managed funds such as Index Funds and ETFs.

In terms of market value, SBI Focused Equity Fund held the highest exposure of Rs 1,059 crore, or 3% of its assets in Adani Ports and SEZ. At the AMC level, Quant Mutual Fund continued to hold higher exposure in Adani Group Companies in its actively managed schemes, having investment in shares worth Rs 4,896 crore.

Around 32 active mutual fund schemes hold exposure of 3% or more in stocks in Adani Group companies. Quant ELSS Tax Saver Fund, Quant Flexi Cap Fund, Quant Absolute Fund, Quant Large Cap Fund, and Quant Infrastructure Fund were among schemes that held high exposure to Adani stocks as a percentage of their respective assets. For instance, Quant ELSS Tax Saver Fund had allocated 7.6% of its assets in Adani Power.

What should investors do?

Mutual fund schemes holding high exposure to Adani stocks is a cause for concern. These funds could witness significant volatility in their NAVs in the near term, exposing investors to higher risk.

That said, over a period the risk can be mitigated as actively managed mutual funds hold a diversified portfolio of stocks - a fall in price of one stock is offset by a potential rise in another stock. Furthermore, no diversified equity mutual fund can hold an allocation of more than 10% in a particular stock to avoid concentration risk. Besides, diversifying the portfolio across various market caps, investment styles and strategies helps in minimising the risk.

One should ideally only consider selling your mutual fund units only in the following scenarios:

• The scheme is consistently underperforming the benchmark and most of its peers

• The investment has grown to the desired corpus

• To gradually shift to safer avenues when the financial goal is approaching

• During portfolio rebalancing to maintain the desired asset allocation

• The fund objective changes and is no longer in congruence with the investor's own objective

• The fund risk profile changes and doesn't match the investor's current risk appetite

• In case of a financial emergency

• The investor wishes to adopt a change in investment style (value, growth, blend, aggressive, conservative, etc.)

However, one may consider exiting the scheme if they are not comfortable with mutual fund schemes persistently holding high exposure to Adani Group companies as they continue to be embroiled in one controversy after another and as the concerns related to poor governance practices continue to prevail.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

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.