Hindenburg row: The top 5 MF schemes with highest exposure to Adani Group stocks – should you sell?

The sell-off in Adani Group stocks lingers on. Equity investors in these stocks are a worried lot. However, mutual fund investors are concerned owing to their indirect exposure to these stocks via mutual fund schemes. Data from research and investment service provider Fisdom shows Quant Mutual Fund, Taurus Mutual Fund and NJ Mutual Fund are the three fund houses with the highest exposure to Adani stocks. They did sell their holdings in January post Hindenburg report, but the exposure still stands between 3% and 6%.

NJ Mutual Fund, which had the highest exposure to Adani stocks as on December 31, 2022, sold most units in January. Adani holdings as percentage of overall equity AUM at NJ MF now stand at 3.8% as on January 31, 2023. Quant Mutual Fund had 8.5% exposure to Adani stocks as on December 31, 2022. It came down to 6.1% by January 31, 2023. Similarly, Adani exposure in Taurus MF’s AUM reduced to 5.7% by January 31, 2023 from 8.1% earlier.

Looking into data, regular growth plans of following five schemes have the highest exposure to Adani stocks:

Quant Infrastructure Fund (12.4%), Taurus Largecap Equity Fund (12.2), Taurus Flexi Cap Fund-Reg (9.8%), Quant Tax Plan (9.8%) and NJ Arbitrage Fund (9.8%).

Also Read | Adani Enterprises' fair value at ₹945, says valuation guru Aswath Damodaran – a detailed assessment of stock by him

What should you do if you are an investor in these schemes?

“For the funds managed by Quant MF, what matters is the price at which the holdings were built and if the current exposures are merely a result of mark-to-market increase in valuations from the point at which it was bought. We have sufficient reason to believe that despite exposure being slightly on the higher side, because of favourable buying prices, negative impact on NAVs is fairly limited,” says Nirav Karkera, Head of Research, Fisdom.

“So far as NJ MF is concerned, the highest exposure is through arbitrage funds which structurally limits the downside for investors. Exposure through Taurus’ funds could be a cause of concern but the overall impact on NAV attributable to decline in Adani group stocks seems to be in the range of 3%-7%,” adds Karkera.

Karkera advises holding on to these funds or gradually diversifying into similar categories by other fund houses based on one’s investment horizon and appetite for volatility.

Moreover, one needs to understand almost all AMCs (for active schemes) have very little or no exposure to Adani Green, Adani Total Gas & Adani Transmission, data from Fisdom shows. “Close to 60% of the total exposure of all mutual fund schemes is into Ambuja + ACC, which are fundamentally strong companies with none of the shares being pledged by the promoters (Adani),” Karkera says.

Take for example, Quant MF had 45.5% exposure in ACC + Ambuja and nearly 31% in Adani Ports and Special Economic Zone as on December 2022.

Adani exposure in index funds

Another concern is index fund’s exposure to Adani stocks. Note that the fund manager has hardly any role to play in stock composition in passive funds as they replicate the indices. The contribution by passive funds as a percentage of total investments made in Adani group stocks stood at 28.40% as on December 31, 2022.

Does it make you question passive strategies? You should not as the two Adani companies – Adani Enterprises and Adani Ports and Special Economic Zone - constitute negligible weightage on Nifty50 index.

“With < 1.5% on the NIFTY50 constituted by two enterprises, the quantum of adverse impact on overall performance of the index or funds tracking it seems negligible at the moment,” says Karkera.

That said, Adani episode shouldn’t affect your passive MF investments. So far as active schemes are concerned, let the fund manager do his job. You invested in an active mutual fund precisely because you trusted your distributor/ advisor for the fund selection and fund manager for the stock selection. If you trust them, hold on to your investments, else make way for a similar scheme by other fund houses.

Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.