In a new move that raises investor concerns, National Stock Exchange (NSE) indices decided on February 17 to include five Adani firms in 14 Nifty indices. Financial experts are seeking urgent intervention by the NSE Board and the market regulator SEBI to review the move, which would drive lakhs of investors’ savings into the Adani group’s sinking stocks from March 31.
NSE Indices said that its equity Index Maintenance Sub-Committee had decided to replace stocks in various indices with effect from March 31 as part of a periodic review. The stocks being included in its indices, among others, are Adani Wilmar (added to the Nifty Next 50 and Nifty 100), Adani Total Gas (Nifty Shariah 25) and Adani Power, which has been added to 10 different indices.
While NSE Indices told The Hindu that the reconstitution of Nifty Indices’ constituents is done on the basis of “objective stock selection criteria”, the decision to include Adani companies in indices has upped worries as the stocks of the group’s firms have continued to be in meltdown since January 24, when U.S. short-seller Hindenburg Research released its scathing report on the alleged financial practices of the the Gautam Adani-led group.
According to the criteria document of NSE indices, the review which resulted in the recent decision was conducted based on stocks data for six months ending January 31 this year. However, Adani stocks have nosedived since January 24 and continued the declining trend after the January 31 cut-off date as well.
In this scenario, financial sector experts, like Jaimini Bhagwati, who had handled the capital markets division at the Finance Ministry, suggest that a review of the decision would be advisable before the March 31 implementation date for the new indices. “There is an urgent need for the NSE’s board of directors to take stock of this unusual situation and consider a review of the indices and their associated provisions, and related issues,” Mr. Bhagwati said.
At a broader level, he said that the SEBI Board should also examine the Nifty indices’ inclusion of Adani group companies’ stocks that have suffered the steepest falls.
The move of NSE indices to include five Adani firms to 14 Nifty indices is significant in terms of potential investor impact, especially on individual retail investors, because nearly 16% of India’s mutual fund industry’s ₹41 lakh crore is parked in index funds and exchange traded funds (ETFs) that mimic indices constructed by the NSE and BSE.
The concerns of financial sector experts and their insistence on a SEBI review are not misplaced as similar worries about the robustness of the country’s market regulation framework have surfaced since the serious allegations of stock manipulation and substantial were raised about the Adani conglomerate by Hindenburg. The subsequent stock rout in the group only added to the concerns.
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Published - February 27, 2023 05:23 pm IST
