71% Indians with direct/indirect exposure to capital markets and surveyed are concerned about governance of Adani Group; Half of them want SEBI and RBI to investigate issues raised in detail

February 8, 2023, New Delhi: Troubles have not abated for Adani Group ever since US short-selling firm Hindenburg Research in a report on January 24th alleged Adani Group of “pulling the largest con in corporate history". The market cap of the group has fallen by almost half from above INR 19 lakh crores on Jan 24th, the day the report was released.

Though Adani Enterprises Limited’s Rs 20,000-crore follow-on public offer (FPO) was fully subscribed, the company decided to cancel it and return the money to investors after its share plunged 28.4%. The Reserve Bank of India (RBI) is reported to have asked banks to share the details of the loans sanctioned by them to the Adani Group companies, and request for loans for new projects may see greater scrutiny.

S&P Dow Jones Indices on February 2nd said that it would remove shares of Adani Enterprises from widely used sustainability indices from February 7th. Meanwhile, S&P Global Ratings has cut its outlook on Adani Ports and SEZ Ltd. and Adani Electricity Mumbai Ltd. to negative. Switzerland-based investment banking company Credit Suisse had earlier stopped accepting bonds of Adani group as collateral for margin loans to its private banking clients, Bloomberg agency reported. The Swiss lender’s private banking arm has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone, Adani Green Energy, and Adani Electricity Mumbai Ltd.

Meanwhile, Finance Minister Nirmala Sitharaman told media on February 4th that the “regulators will do their job,” pointing out that the Reserve Bank of India, the banks and the Life Insurance Corporation (LIC) have themselves come out to say what their level of exposure is. She further stressed that the “regulators are independent of the government... and they are left to themselves to do what is appropriate for keeping the markets regulated in prime condition. The SEBI (Securities and Exchange Board of India) has the wherewithal to keep that prime condition intact," she said. The RBI on February 3rd said the country's banking system remains resilient and stable amid concerns about the risk to Indian banks from the collapse in Adani stocks.

Citizens, especially the ones who have direct or indirect exposure to Adani Group companies and those who have exposure to markets through individual stocks, mutual funds, retirement accounts or life insurance policy have been writing about their concerns and observations on this development on LocalCircles since Jan 24th. Many have written about the exposure of LIC to Adani Group. Over INR 30,000 crores had been invested by Life Insurance Corporation of India into shares of Adani Group companies. Reports indicate that this investment of LIC has declined by over 50% from its peak but is still not in the Red. Given the public dialogue and concern on this matter, LocalCircles conducted a national survey to quantify the pulse of the citizens. The survey received over 29,000 responses from citizens located in 273 districts of India. 66% respondents were men while 34% respondents were women. 47% respondents were from tier 1, 33% from tier 2 and 20% respondents were from tier 3, 4 and rural districts.

51% Indians with direct or indirect exposure to capital markets and surveyed are very concerned about the governance quality of Adani Group while 20% are “somewhat concerned”

The first question in the survey focused on the level of concern amongst those who have some exposure to the capital markets, albeit direct or indirect. It asked respondents, “As a market participant directly or indirectly through mutual funds, insurance, provident fund, etc., are you concerned about governance quality of the Adani group”. A total of 17,711 responded to this query with 71% expressing concern. The breakdown of data shows 51% of the respondents with direct or indirect exposure to stock markets are very concerned about the governance quality of Adani Group while 20% of respondents are “somewhat concerned”. Of the remaining 20% are not concerned at all and 9% are uncertain.

34% Indians with direct or indirect exposure to capital markets say SEBI & RBI should do a detailed investigation of Adani Group companies while 27% believe the group should appoint an external auditor of repute

Given the concerns outlined, the next survey question sought to know from respondents about the course of action they seek from the government and the regulators. It asked people with direct or indirect exposure to capital markets “What major step if taken by the regulators, government and Adani Group will address concerns of the public in the light of the issues raised by Hindenburg”. Over 12,000 people responded to this query with 34% indicating that they would like market regulator SEBI and the Reserve Bank of India (RBI) to do a detailed investigation of Adani Group companies for which concerns have been raised. 27% in the survey said that external auditors of repute should be appointed. Media reports indicated that the Adani Group has been using a relatively unknown and small local firm called Shah, Dhandharia and Co. as their auditors. In addition to this 61%, 16% of respondents are in favour of “Adani Group contesting issues raised by Hindenburg in US courts” while 16% wanted the “Government to disclose to public the rationale and documentation behind LIC’s INR 30,000 crore investment in Adani Group companies; and 7% respondents chose not to give a clear response.

In summary, the survey makes it clear that 71% of the citizens who have direct or indirect exposure to capital markets are concerned about governance of Adani Group. Almost half of them are keen that RBI and SEBI do a detailed investigation of the group companies where concerns have been raised. Some of the citizens have even raised concerns about LIC’s exposure to the group and called IRDA to take action to protect depositors interest. Some of the citizens feel there is some level of broader market risk. While the Corporate Affairs ministry is doing its bit, together the government and regulators must do all possible to ensure the broader risk to direct and indirect retail investors and depositors is minimized.

LocalCircles will escalate the findings of this survey to the key stakeholders in the Government and regulators so they are aware of the collective concerns so that actions are taken to address them.