On Monday, shares of Adani group companies tumbled rather precipitously in a matter of a few hours. And while it came against the backdrop of an ET report that alleged NSDL had frozen the accounts of three foreign funds holding about 43,000 crores worth of shares in the group companies, not everybody was convinced about the veracity of the reports themselves.

So in today’s Finshots, we piece together the puzzle and see all the conflicting reports associated with the incident.


The Story

First, the Economic Times publishes a report alleging that the NSDL had frozen accounts of three foreign portfolio investors (FPIs) for alleged non-disclosure of information. The report also made the Adani connection and it was reason enough for the stocks to take a beating in Dalal Street.

But then Moneycontrol found something else. They had sources telling them that at least two of the accounts were frozen on orders from SEBI back in 2016 in a totally unrelated case. A report from Reuters pretty much confirmed the same. But before we break down what’s happening here, we need some background on Demat accounts and NSDL.

Think of a Demat Account as a special place where you can safely store all the shares you own. In the online universe, you don’t need to have a physical copy of the share certificate to authenticate your ownership. Instead, a digital copy will do. However, this digital copy needs to be held in an independent facility so you know for sure, nobody can tamper with it — sort of like a digital locker, or as we like to call it here, a Demat account. And NSDL — the National Securities Depository Limited lets you own one of these accounts. Needless to say, they also have the ability to close it down if you weren’t compliant with the laws of the land.

Now the Reuters report notes that the three Mauritius-based funds may have held multiple Demat accounts in their name and that NSDL may have “frozen accounts of the funds that hold certain other securities and not those holding Adani company shares.” Thereby implying that the whole “freezing fiasco” might have nothing to do with Adani at all.

If you asked Adani, they'd tell you the same thing. Actually they did put out a statement confirming this. But what about reports that contest the accounts may have been frozen due to non-disclosure of certain key information? Surely, there's some merit to this, no?

Well, maybe. If you’re a foreign investor, you are expected to share details about the end-beneficiaries and the source of your funds. SEBI wants to make sure that there’s no funny business going on in the background and these rules have been in force for a while now. However, it seems some of these investors haven’t yet furnished this information.

Why would they not come through you ask?

Well, it could be because they’re busy. Or maybe the beneficiary owners simply don't want to disclose who they are. Which is why there’s been so much speculation about the funds and their connection with Adani. If these reports are in fact true, then it most certainly doesn’t bode well for the company.

Finally, there are the allegations surrounding the mercurial rise of Adani shares itself. Many reports argue that the rally may have partly been fuelled by the relatively modest free float associated with the companies. Think of it this way — Most shares are usually held by promoters of companies, who can’t buy and sell their holding as they please. There are reasonable restrictions imposed on them and they can’t dabble in the open market with impunity. So when you see shares “floating around” in the open market, you’re only seeing a fraction of the total shares available. And rumour has it that promoters and large institutions (like the three foreign funds) hold a sizeable part of Adani group companies, leaving very little to the public. This means, even a few shares exchanging hands can massively influence prices, which is what many people believe aided the rally and the sudden capitulation we witnessed recently.

So yeah, there’s a lot of speculation on what’s really happening with Adani, and if you have a hot take on the matter, don’t forget to let us know on Twitter.

Until then…

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