Adani Group of companies say that reports pertaining to the freezing of 3 foreign funds by National Securities Depository Ltd (NSDL) namely, Albula Investment Fund, Cresta Fund and APMS Investment Fund, holding shares in Adani Group companies are erroneous. Stocks of Adani group companies took a beating on 14th June 2021 following such reports. As per an Economic Times report, NSDL froze the accounts of Albula Investment Fund, Cresta Fund and APMS Investment Fund, which together own more than Rs 43,500 crore worth of shares in Adani Enterprises, Adani Green Energy, Adani Transmission and Adani Total Gas.
According to the Forbes real-time billionaires list, Gautam Adani has lost over $4 billion after his listed companies took a massive intraday hit on the stock market. As per the list, his wealth has decreased to $70.8 billion.
While the Economic Times report that triggered the market collapse attributed the freeze of demat accounts of the foreign portfolio investors to investigations into the KYC norms of the funds under the Prevention of Money Laundering Act (PMLA), the Adani group naturally suspects business and political rivals at work. Recently Dow Jones had ticked off Adani for having played ball with Myanmar military dictators in engineering the coup. That together with the more recent development lends credence to suspicion of rivals at work
As it happens, the innocent are caught in the cross-fire. And in all fairness this should not happen. There has always been a sneaking suspicion that ever since the Foreign Institutional Investors (FIIs) were allowed to invest in the early nineties of the previous century following economic liberalization and globalization, Indian black money stashed away abroad regularly returns to India through the FII route duly laundered. The opaque participatory note mechanism under which one could get anonymity by hiding behind a SEBI registered FII fueled and stoked this suspicion further. Round-tripping as the process of laundering is known not only begets India foreign exchange but also ramps up the share prices of the companies patronized by the FIIs. FIIs have now morphed into FPIs (foreign portfolio investors) but the sneaking suspicion that they are to some significant extent the handmaidens of Indian promoters has to be lived down.
SEBI might be justified in investigating the credentials of the FPIs in question that have invested a massive Rs 43,500 crore in the Adani group but it ought not to have allowed its confidential work to be leaked out pending final conclusions. Adani of course can take care of himself by filing a defamation suit against those who might have spread the calumnious news (if investigations prove his group’s innocence) but retail investors have been done damage beyond repair. They have no means or stakes to seek recompense from the mischief makers. To be singed by corporate rivalry is then a hazard of retail investments in the share market. Mutual funds come out relatively unscathed thanks to their USP---diversified portfolio for each scheme.
The role of the FPI in the Indian bourses have been a mixed bag. While it has shored up our forex reserves, the truth is it is hot money---it can leave India as quickly and suddenly as it came because foreign investment is footloose seeking greener pastures all the time. It thus causes upheavals both in the share and currency markets---when FPIs enter with dollops of dollars, the Indian rupee appreciates as does the Sensex and when they exit, the reverse happens. Skeptics aver that most of the booms witnessed in the last couple of decades have been on the back of liquidity and not fundamentals. The bottom line for small investors is they should take the rough with the smooth. And the economy too should grin and bear the downsides of FPI while savoring its benefits.
While KYC investigations are fine, they should not be selective.
(The writer is a senior columnist and tweets @smurlidharan)
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