Eight foreign portfolio investors (FPIs), which had heavy exposure to Adani Group companies in the past, have filed settlement applications with market regulator the Securities Exchange Board of India (Sebi) to close the pending investigations being conducted by the market regulator. The cases pertain to their shareholding in Adani Group, and Sebi has been investigating whether they breached any market rules.
Notably, Adani stocks have hardly reacted to news reports of FPIs with past exposure to Adani stocks seeking a settlement. Since April 22, the Adani group stocks have traded flat, indicating that the market has put the episode behind it. Moneycontrol explains the way forward in these cases.
Why are the funds in question offering to settle with Sebi?
Settlement is a process through which settle any cases pertaining to alleged violation of market rules without accepting or denying the guilt by paying a fine. Once an entity files a settlement application, it is referred to a high- powered advisory committee (HPAC) which decides whether or not to accept the settlement application and in case the application is being accepted, it also finalizes the fine payable by the accused.
What if Sebi okays the settlement applications of the FPIs?
If the settlement applications are accepted, the funds will pay a fee to settle the case. Lawyers privy to the development say the settlement amount could be high given the nature of the issues being probed. It will also mark the end of the current set of investigations into the Adani-Hindenburg issue. The apex court has already delivered its verdict on the matter, and Sebi is in the final stages of the adjudication process for the rest of the cases. However, if any new evidence comes into possession of Sebi subsequent to the settlement, the market regulator has the power to relook into the matter, but such an action is very rare. Meanwhile, reports also suggest that the markets regulator has sent notices to short sellers of Adani group stocks, which are supposed to have driven down the group’s shares during the peak of the crisis.
Notably, shares of Adani companies have recouped most of the losses since the publication of the Hindenburg report on January 24, and the group market’s capitalization stood at Rs 15.28 lakh crore in March 2024.
What if Sebi rejects the settlement applications of the FPIs?
Under the rules, Sebi has powers to reject any settlement applications if the violations have had market wide ramifications. Also, Sebi doesn’t settle cases where the violation involves insider trading or serious fraud. If Sebi rejects the settlement pleas, the investigation will be concluded, and it will pass final quasi-judicial orders. The foreign funds will then be able to appeal these orders in higher judicial forums, including the Securities and Appellant Tribunal (SAT) and the Supreme Court. Also, during these investigations, if any new violation comes to Sebi’s attention, the market regulator has the power to widen the scope of the probe. If the settlement is rejected, it will take at least a few years for the matter to reach a logical conclusion. First, Sebi would take a few months to issue orders, and then the appeals process takes longer, say lawyers.
How big are these funds, and how would they be impacted?
These cases would not have any significant bearing on the Indian markets or retail investors since the funds under question have already shrunk and own negligible shares in other listed companies. All the seven FPIs in question had invested over 90% of their corpus in Adani Group companies. Since 2021, they have pruned their exposure to the Adani Group significantly. For instance, one of the FPIs under Sebi’s radar is the Albula Investment Fund. At its peak in 2021, it held assets worth Rs 41,000 crore in Indian stocks. It currently holds shares worth only Rs 2,296 crore, according to Trendlyne data. Similarly, another fund Vespara held assets worth Rs 10,000 crore in India in 2021 of which 98% was in Adani companies. Now, the total value of assets held by Vespara is down to about Rs 4,000 crore, of which Rs 3,661 crore is due to a small residual stake left in Adani Enterprises, Trendlyne showed.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
