Hindenburg Effect: SBI and LIC at risk after fraud allegations on Adani?

Hindenburg Report Effect: The Adani Group’s shares experienced a significant decline for two consecutive days on Friday, impacting bank and financial stocks as well. Indian banks have loaned around 80,000 crore to Adani Group companies, and LIC has an investment of over 70,000 crore in the group. This has led to heavy selling in the shares of banks and LIC due to concerns about the potential loss of these loans and investments. Bank of Baroda’s shares dropped by 7% and SBI’s by 4.69%, and LIC, the largest insurance company in the country, saw a 4.3% decrease in its shares at one point, but closed at a 3.25% decrease.

Chief Market Strategist of WealthMills Securities Pvt., Kranti Bathini, said that there is a negative sentiment in the market, which is affecting bank stocks. One of the reasons for this is the Hindenburg Research report of stock manipulation by Adani Group. The top five companies of Adani Group have seen their debt double in the last four years.

According to a report by brokerage firm CLSA, the share of Indian banks in Adani Group’s total debt is less than 40%. According to the report, banks account for 38% of Adani Group’s total debt, bonds and commercial papers account for 37%, and financial institutions account for 11%. In financial year 2022, Adani Group had a debt of two lakh crore rupees, of which around 80,000 crore rupees was from banks.

In a statement, Congress leader Jairam Ramesh claimed that public sector banks have extended twice as much in loans to the Adani group’s private banks. The State Bank of India alone is responsible for 40% of these loans. This puts the financial well-being of those who have invested in LIC and SBI at risk. Ramesh warned that if the accusations against the Adani group are true, public sector banks like SBI could face significant losses.

Analysts led by Adarsh Parasrampuria have also noted that the Adani group has a higher level of debt with public sector banks compared to private banks. The State Bank of India, however, maintains that its loans to companies within the Adani group fall within acceptable limits, though the exact amount remains undisclosed.

LIC has increased its investment in Adani Group companies. As of September 30, 2022, LIC’s total equity portfolio stood at Rs 10.27 lakh crore. Out of this, LIC’s investment in Adani Group companies is about 7%. Foreign portfolio investors have reduced their exposure to Adani Group companies in recent months. Last year the government had brought the IPO of LIC. But its stock has never reached its issue price.

As of September 30, 2022, LIC has increased its investment in various Adani Group companies such as Adani Enterprises, Adani Total Gas, Adani Transmission and Adani Green Energy. The value of LIC’s investment in Adani Enterprises stood at 4.02%, which is worth Rs 17,966 crore. Additionally, LIC holds 5.77% in Adani Total Gas, 3.46% in Adani Transmission and 1.15% in Adani Green Energy. Furthermore, LIC’s stake in Adani Ports is 11.9%. However, recently, the shares of these companies dropped by as much as 20%, leading to a loss of 16,300 crores for LIC. The company has investments in a total of seven Adani Group companies.

SEBI, the market regulator, is taking notice of the matter. As per Reuters, SEBI will thoroughly examine all deals made by the Adani Group in the past year, including their acquisitions of Ambuja Cements and ACC Limited. SEBI will also review the report by US short seller company Hindenburg Research, which contains serious allegations against the Adani Group. The Adani Group has denied these allegations and plans to take legal action against Hindenburg Research.