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MC Explains| 3 Adani stocks on ASM radar. What does it mean for traders?

On February 2, NSE put Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cement under the Additional Surveillance Measure framework

March 03, 2023 / 04:20 PM IST
Adani Group has shifted its focus to financial health, debt repayment, cash conservation, and recovering pledged shares to reassure investors.

Adani Group has shifted its focus to financial health, debt repayment, cash conservation, and recovering pledged shares to reassure investors.

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The market rout in the universe of listed Adani companies refuses to abate. The woes of the conglomerates continue to multiply, and for now, Adani Group's damage control tactics against the report by US short-seller Hindenburg Research have panned out disastrously.

The decision of Adani Enterprises to pull back its Follow-On Public Offering (FPO), even if taken “to protect the interest of its investing community,” upended the narrative for the company, evident adequately from the freewheeling downhill collapse playing out in all the Adani Group stocks.

On February 2, the NSE opted to put three firms of the Adani Group, namely Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cement under the Additional Surveillance Measure (ASM) framework. Specifically, the three scrips have satisfied the criterion for inclusion in Stage I of the short-term ASM framework.

Before we break down the nuances of what undergirds an ASM framework, its different types and when it is triggered, traders would like to know that under the ASM framework, the applicable rate of margin will be 50 percent or the current rate (in case the current rate of margin is higher than 50 percent).

The maximum rate of margin that can be applied is 100 percent. This rate of margin will be applicable from February 6 on all positions as of February 3. New open positions created from February 6 will also carry this margin rate. It is important to note here that the rate of margin will mandatorily be ratcheted up to 100 percent, if and when the stocks are put into Stage II of the short-term ASM category.

Also read: Adani Enterprises sees worst ever fall, erodes 76% wealth since December

The elevated rate of margins is deployed to discourage excessively leveraged positions that can possibly trip off fierce short-selling, spikes in volatility and inflated stock speculation. It becomes quite difficult for traders to carry out intraday trades in such scrips given the high margin and the circuit filters which retards the possibility of making handsome profits.

The ASM framework works to deter traders from taking outsized risks by hiking margins and reducing the liquidity at their disposal. The big wigs within the trading community are also discouraged from taking on new positions or otherwise will be required to furnish large margins to liquidate their existing positions, which, effectively works to stabilise the stock price.

MC Explains

It remains to be seen if the three stocks will play within the confines of the theoretically ideal scenario where their prices will stabilise in the course of the next few days. Failing that, more pain will be in store for millions of retail investors who have been pooling their savings into Adani Group’s stocks.

As of February 3, seven Adani stocks had hit the lower circuit in early morning trade.

What is the ASM framework? 

The ASM framework was put in place to ensure that market integrity and the interest of ordinary investors are not compromised. The market regulator Securities and Exchange Board of India in consultation with the exchanges -- NSE, BSE and MSEI-- has designed the framework with a twofold objective in mind. Firstly, the framework is meant to alert and advise investors to be extra cautious while dealing in these securities, and secondly, to urge market participants to carry out their due diligence before dealing in them.

Eight market-based dynamic parameters are considered before a scrip is placed under the ASM rubric. They include high-low variation, client concentration, close-to-close price variation, market capitalisation, volume variation, delivery of percentages, number of unique PANs and PE.

The ASM framework is divided into long-term ASM and short-term ASM. Within the short-term ASM, there are different criteria governing when a stock makes an entry into Stage I, and the grounds on which it is downgraded into Stage II, or is otherwise given an exit from Stage I.

The fallout of being included in the short-term ASM framework in Stage I 

Once a stock is shortlisted in this stage:

The exchange seeks clarification from the company about corporate announcement(s), if any, that have not been disseminated to the markets. The clarification given by the company is subsequently disseminated to the markets by the exchange. Further, a surveillance dashboard will be displayed on the website of the exchange mentioning the name of the stocks and other relevant information concerning the company. Lastly, an elevated margin rate will come into play.

When can the three stocks exit the stage I ST-ASM framework? 

The three stocks will be retained in Stage I for a minimum period of 5 days. After that, they will be up for a review on the 6th day. If the three stocks don’t meet any entry criteria for Stage II of ASM, they will be moved out of the ASM framework. If on the sixth day, they fit the complex criteria for entry into Stage II, they will be downgraded so.

As long as the three stocks continue to attract the short-term ASM criteria, they will be kept in this category without being moved to the long-term ASM framework.

Kaushal Shroff
first published: Feb 3, 2023 11:57 am