The aftermath of the Hindenburg Research report may have made several large investors rethink their exposures to the Adani group. But one large pool of capital has continued to invest in two Adani stocks, including flagship Adani Enterprises, and will keep doing so till at least September this year, unless its trustees rethink their investment approach when they meet this week.
These investments are being made by India’s largest retirement fund — the Employees’ Provident Fund Organisation (EPFO) — which manages the old age savings of 27.73 crore formal sector employees and invests 15% of its corpus into exchange traded funds (ETFs) linked to the NSE Nifty 50 and the BSE Sensex.
Keeping Adani stocks
The second largest non-banking financial institution after the LIC of India earmarks up to 85% of its equity investments into ETFs tracking the Nifty 50, which had added Adani Enterprises last September and has retained the stock for another six months for the period starting from March 30 this year.
Adani Ports and SEZ (APSEZ) has been part of the Nifty 50 since September 2015, a month after the EPFO first opened up to equity investments by deploying 5% of incremental contributions received from its members into ETFs. The APSEZ stock has also been retained in the Nifty 50 for the next six months, along with Adani Enterprises, after a recent index review by NSE subsidiary, NSE Indices.
Savings at stake
Central Provident Fund Commissioner Neelam Shami Rao did not respond to a questionnaire sent by The Hindu on March 23, asking about the EPFO’s exposure to the Adani group stocks, whether its fund managers had been given any instructions to avoid fresh investments in those stocks to safeguard people’s old age savings, and whether any shift away from investments linked to the Nifty 50 is being mulled.
The EPFO, which had ₹1.57 lakh crore invested in ETFs as of March 2022, is estimated to have invested another ₹38,000 crore in them during 2022-23 out of the fresh contributions amounting to an estimated ₹2.54 lakh crore remitted into EPF members’ accounts.
Trustees of the EPFO that The Hindu reached out to said that they were not aware of its Adani stock exposures, but the issue may figure in a two-day meet of its board, chaired by Union Labour and Employment Minister Bhupender Yadav, that begins on Monday.
The EPFO’s investment income for this year and the interest rate to be paid to members are expected to be discussed at the board of trustees meeting. Last year, the EPF rate was lowered to a 45-year low of 8.1%.
Dragging down returns
Since it has only begun investing in Adani Enterprises in the past six months, its exposure to the beleaguered group’s flagship stock is far lower than its accumulated exposure to APSEZ shares over the years, a government official said. EPFO had raised its equity exposure to 10% of fresh inflows in September 2016 and further enhanced it to 15% in May 2017.
However, given the sharp drop in the Adani stocks’ prices since January 24, EPFO’s Adani investments will drag down its returns on investment and could have repercussions on the annual EPF rate paid to its members.
As of March 24, the Adani Enterprises stock was down over 49% from the price levels at which it was included in the NSE Nifty 50, and was 58.5% below its 52-week high level of ₹4,190, reached in December 2022. The APSEZ stock is down almost 19% since the beginning of 2022-23 and over 35% below its 52-week high of ₹987.8, recorded in September 2022.