Adani Group firms' stocks are underweight in actively managed mutual funds

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Even as various Adani Group companies have soared in 2020 and 2021, their stocks are underweight in actively managed mutual funds compared with indices. Fund houses with the highest weights in Adani stocks hold them in index funds, where they have to replicate an index without any managerial discretion. Alternatively, fund houses hold such stocks in hybrid schemes with strategies such as arbitrage, where the bet is not on the underlying stock. The underlying stock is hedged with derivatives to benefit from the spread between the two.

The top three mutual fund schemes in terms of allocation to Adani Green Energy as a percentage of scheme assets are ICICI Prudential Select Midcap ETF, Nippon India ETF Junior BeES, and ICICI Prudential Nifty Next 50 Index Fund. Their allocations are 5.36%, 3.19% and 3.19%, respectively, of their scheme assets, according to data from Rupeevest as of 30 April. The Adani Green Energy stock is up 6.6 times since the start of 2020.

In case of Adani Enterprises, the top three schemes are Aditya Birla Sun Life Equity Savings Fund, ITI Arbitrage Fund, and UTI Nifty 200 Momentum 30 Index Fund with weights of 9.62%, 8.43% and 6.74%, respectively. An equity savings fund typically uses derivatives to hedge part of its equity exposure and in that respect is similar to an arbitrage fund. A similar pattern is seen in Adani Total Gas and Adani Ports and Special Economic Zone Ltd. In case of the latter, the top holders are infrastructure or transport sector funds such as HSBC Infra Equity or UTI Transportation and Logistics Fund, with allocations of 8-9% of assets apart from arbitrage funds.

“Fund managers would prefer to invest in companies that are widely tracked by analysts and have a transparent structure. They also tend to avoid highly leveraged companies. This is why actively managed funds have avoided groups such as Adani, in my view,” said Shyam Sekhar, chief ideator, iThought Advisory.

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