Kavitha urged FM Sitharaman to 'have a conversation with millions of investors who have already started facing the burnt'.
BRS MLC K Kavitha. (Supplied)
Terming as worrisome the beating that stocks like SBI and LIC have suffered in the wake of a sharp drop in the market after a report questioned the financials of the Adani Group, BRS MLC Kalvakuntla Kavitha on Saturday, 28 January, urged Union Finance Minister Nirmala Sitharaman to assuage millions of anxious investors.
In a statement, the BRS MLC said: “The recent fall and fluctuations in the LIC, SBI and market on the whole, after the recent report on Adani Group is extremely worrisome. Every Indian deserves an explanation and it is the responsibility of the Indian Government to answer all the questions.”
Along with Sitharaman, Kavitha, daughter of Telangana Chief Minister K Chandrashekar Rao, urged SEBI Chairperson Madhabi Puri Buch “to not only initiate recovery measures but also have a conversation with millions of investors and dependent households who have already started facing the brunt”.
A report titled ‘How the World’s 3rd-richest Man is Pulling the Largest Con in Corporate History’, by the US-based Hindenburg Research, has contended that the Adani Group has “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.
Adani group has since rubbished the report as a “malicious combination of selective misinformation and stale, baseless and discredited allegations”.
The sharp drop in the Adani Group’s shares in just two trading sessions has eroded almost ₹24,000 crore of value for LIC — the country’s biggest institutional investor — as well as mutual funds (MFs).
LIC is the biggest domestic institutional investor (DII) in the Adani Group, with over 5 percent stake in four listed group companies.
Analysts have described this as an “indirect hit” for small investors who have been channeling their investments through LIC and MFs.
LIC’s combined investment in Adani group stocks plunged to ₹62,621 crore on 27 January from ₹81,268 crore on 24 January — a notional loss of ₹18,647 crore.
By the end of Friday, the Adani Group’s stocks saw an erosion of a whopping $50 billion in market value.
The State Bank of India (SBI) believed to be a major lender to the Adani Group, saw its stock plunge to ₹540.20 on Friday from a recent high of ₹629.
The country’s largest bank, however, said there was no reason to worry about its exposure to the group.
“While as a matter of policy, we don’t comment on individual clients, in the interest of setting the context right, we wish to clarify that SBI’s exposure to Adani Group is well below the Large Exposure Framework.
“All exposure to the group from SBI is secured by cash generating assets with adequate TRA/Escrow mechanism in place, hence debt service will not be a challenge,” SBI said in a statement.
The bank, however, did not comment on the amount of its exposure to the group.
Hindenburg Research is a financial research firm that focuses on investigating and publishing research on publicly-traded companies, often with a focus on uncovering fraudulent or unethical business practices.
In its 32,000-word report which it says has been after two years of intensive research, Hindenburg Research has made very specific allegations against the Adani Group.
It has alleged that seven listed companies of the Adani group currently have an 85 percent downside. In finance, the “downside” of a company refers to the potential negative aspects or risks associated with investing in the company.
The report also highlighted the financial liabilities of the group, noting that several registered Adani subsidiaries had taken up substantial obligations, and even put up their inflated stocks as security for loans, thus putting the entire organisation in a vulnerable fiscal situation.
The report stated that out of the seven crucial listed entities of the group, five had a “current ratio” of less than one, pointing to imminent liquidity problems.
The report said that several of the most prominent people who own shares in Adani companies, apart from the promoters, are offshore shells and funds related to the Adani Group. If the Securities and Exchange Board of India (SEBI) enforced its regulations, this situation would result in the delisting of the Adani firms, the report said.
The Adani Group has responded by accusing Hindenburg Research of “malicious combination of selective misinformation and stale baseless and discredited allegations”.
“The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming follow-on public offering from Adani Enterprises, the biggest FPO ever in India.
“The investor community has always reposed faith in the Adani Group on the basis of detailed analysis and reports prepared by financial experts and leading national and international credit rating agencies. Our informed and knowledgeable investors are not influenced by one-sided, motivated, and unsubstantiated reports with vested interests,” Adani group CFO added.
However, after threats by the Adani Group of legal action, Hindenburg responded with a statement saying that it would stand by its report and challenged the group to sue it in the US where it operates.
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