The National Stock Exchange (NSE) placed Adani Ports and SEZ, Adani Enterprises, and Ambuja Cements under short-term Additional Surveillance Mechanism (ASM), the body stated, late Thursday, 2 February.
The imposition of the surveillance measures, which will begin on 6 February, comes after the US short seller Hindenburg report and five days of trading which reduced Gautam Adani's net worth by nearly $70 billion, as well as resulted in the withdrawal of Adani Enterprises' Rs 20,000 crore FPO.
How will additional surveillance measures affect Adani Group's stock prices? What does ASM entail? We spoke to experts to get you answers.
What are Additional Surveillance Measures?
According to the NSE, ASM was created in 2018 to "enhance market integrity and safeguard the interest of investors". Their primary objective is to:
Alert and advice investors to be extra cautious when dealing with these securities
Advise all market participants to carry out due diligence when dealing with these securities
The measures use a list of objective parameters, decided upon by the NSE in consultation with the Securities and Exchange Board of India and stock exchanges, to decide whether a company's stock will be subject to closer scrutiny.
The criteria – which includes client concentration and market capitalisation – are assessed for a period of time and based on their performance in that period, the NSE decides whether a company's securities must be placed under long-term ASM or short-term ASM.
To be placed under this umbrella, the NSE analyses the company's stock for a period of 5 to 15 days and if they identify variations of more than 75 percent between their high and low prices as well as fewer than 200 unique traders trading in these stocks in that time, the company is likely to be placed under short-term ASM.
The three Adani group companies have been placed under stage 1 of short-term ASM.
What Does This Mean For Adani Shares?
The NSE, while placing the three companies under ASM, stated that the "applicable rate of margin shall be 50 percent or existing margin whichever is higher, subject to maximum rate of margin capped at 100 per cent."
In simple, non-business terms, a margin is collateral, either cash, securities, or other forms of collateral, which an investor places with a broker, to let them trade in shares. It's like you deposit a certain amount of cash or collateral with a broker, and they let you invest for that much, and if there's anything more you want to invest in, you can take a loan from the broker for that additional amount invested.
For example, 'A' wants to invest Rs 10,000 in shares, but 'A' has only provided Rs 5,000 as collateral with the broker. The broker can provide the remaining Rs 5,000 as a loan and this lets 'A' invest in the shares at a 50 percent margin. The Rs 5,000 you put down as collateral is your margin, and it's 50 percent of the total trade value.
In Adani Group's case, anyone who wants to trade in the mentioned securities will need to provide either 50 percent margin or whatever existing margin, whichever is higher.
This could very likely go up to 100 percent margin, according to industry sources, which means any trades that happen can only happen if the full cost of the securities is furnished with the broker.
This requirement for a higher margin is meant for preventing investors from falling into traps and protect their interests above all.
Should Investors Be Concerned?
The NSE has reiterated that the surveillance measures should not be construed as adverse action against the group.
With that said, should investors shy away from investing in a company that's had its securities placed under ASM? Perhaps not.
Market expert Deven R Choksey from KR Choksey Group told The Quint, "Any fall of this nature will be a concern. And it's not Adani's concern, but a concern for the investors and the community. But investors should look at fundamentals more than the market technical. If you see anything wrong with the business, then I think you're justified in not investing, but if you see nothing wrong with the business, then there's no point getting worried about it."
When Will Additional Surveillance Measures Be Lifted?
Well, whether the measures will be lifted depends entirely on the performance of the shares.
The NSE places each stock under a stage for a minimum period of 5/15 days and reviews them on the 6th or 16th day.
If the stocks don't improve after a period of 5/15 days of stage 1 of short-term ASM, it will be extended to stage 2 of short-term ASM. If it continues in this way, without falling into the parameters that qualify it for long-term ASM, the measures will continue as is till the stock improves.
However, if the criteria is met for the company's shares to be placed under long-term ASM, they will be placed under stage 1 of long-term ASM. ASM also has four stages, each with more intense criteria.
"The NSE will keep monitoring the stock position in the market. If the stock position recovers faster, then the recovery will also happen faster," Choksey explained.