Battered Adani Stocks Under ASM Framework: What Does It Mean?

As of February 3, seven companies of the Adani Group are on the National Stock Exchange and Bombay Stock Exchanges's Additional Securities Measure (ASM) list, with Adani Ports and Special Economic Zones (APSEZ), Adani Enterprises and Ambuja Cements being the latest entrants on the list.

The latest three companies were added by the exchange thursday evening.

There are two ASM lists: Long-term and short-term. APSEZ, Adani Enterprises and Ambuja Cements have joined Adani Total Gas, Adani Transmissions and Adani Green Energy Limited on the short-term ASM list. Adani Power is on the long-term ASM list.

This development follows after the Adani Group stocks witnessed a massive fall in their share prices this week. It was triggered on January 25, when activist short-sellers Hindenberg Research released a report accusing the group of stock manipulation, fraud and corporate mis-governance.

Hindeburg's report came just two days before Adani Enterprises' follow-on public offer worth ₹20,000 crore, the largest in India. The offer was subscribed with the help of large institutional investors but the rout on the exchanges continued. On Wednesday, the group decided to forego the offer and refund money to the investors.

But a more immediate lynchpin to the rout was from the international debt market, when news of Credit Suisse and Citibank no longer accepting bonds issued by the Adani Group companies as collateral emerged. The Dow Jones has also excluded Adani Enterprises from its sustainability index.

Here's what you need to know about the measures announced by the exchanges.

1. What does the being on the ASM list mean?

For the security of investors, the exchanges may list certain scripts on their ASM lists based on certain parameters.

This does not constitute an adverse action on the part of the regulator or the exchanges towards any company whose scrip is on the list as it is only a surveillance measure.

But it does signal that investors must exercise caution in dealing with them.

Even though the mentioned Adani Group stocks are across both the exchanges, the actual lists across both the exchanges differ.

2. What parameters are used?

The following parameters are considered:

• High-low variations
• Client concentration and unique PANs (or unique clients) trading
• Market Capitalisation
• Close-to-close price and volume variation
• Delivery percentage
• Price-to-equity
• Beta of a stock

A beta of a stock is the return of a stock with respect to the return of the market, as defined here.

3. Long term ASM list vs. short term ASM list

There are six criteria laid down by the exchanges for entry into the list based on several combinations of the parameters mentioned above.

While beta is only applicable to positive variations, a stock can meet any of the six criteria to be put on the list.

Further, each of these lists contain stages. The long-term list has four stages. The short-term list has two stages. The stages are defined by drilling down into the above-mentioned parameters even further.

On a long-term list, a stock must spend 60 calendar days on the ASM to be eligible for exit. Further, the exits are graded - a stock on Stage 4 must move to Stage 3, then to Stage 2 and then to Stage 1, following which it can exit the list. The determination of whether a stock can move across stages is done weekly.

On the short-term list, a stock must spend either 5 or 15 days on the list (as decided), and its exit can be reviewed on from the 6 or 16th day onward (as applicable).

A stock may be upgraded to the long-term list if it meets the criteria from the short-term one.

Adani Power is on Stage 1 on the long-term list on both exchanges.

All the other Adani Group stocks are on Stage 1 on the short-term list on both exchanges.

Notably, public sector companies are excluded from these lists.

4. Actions on stock on the long-term list

Stage 1: The margin will be made 100% on the stock from T+3 (where T is when the stock was placed on the list)

Stage 2: The price bands are lowered, and the applicable margin is made 100% from T+3

Stage 3: The price bands are lowered even more and applicable margin is made 100% from T+3

Stage 4: All settlement is gross for all clients (no margin applicable) and the price band is 5%

A lowering of the price band restricts the amount of variation in a stock, but it also stifles trading by restricting the variation in it.

A margin in a stock means the amount of collateral - either in cash, stock holding, or any asset, a trader needs to put up before transacting in a stock.

Also Read: Explained: Stock Market Price Bands And Circuit Breakers

5. Actions on stocks on short-term lists

Stocks shortlisted to be on the short-term have moral suasion actions and margin requirements. They do not have price-band restrictions.

Stage 1: The applicable margin rate is 50%, or the prevailing one, whichever is higher, to a maximum of 100%.

Further, the exchange will seek clarifications from the company, which will be publicly dissemination. A surveillance dashboard will also publicly display the name of the stock.

Stage 2: The margin on the stock is made 100%.

The stocks on any ASM list cannot be pledged, but being shortlisted here does not inhibit corporate action like splits or dividends, according to the Mint.

All of this information is available with the Bombay Stock Exchange here and the National Stock Exchange here.

Adani Eneterpriese and APSEZ are components of the National Stock Exchange's benchmark NIFTY50 index. They both staged strong recoveries from the daily lows on Friday. Adani Enterprises closed at ₹1,536 from a intraday low of ₹1,014.45. But it is still down 3% compared to yesterday's closing. It is still a far cry from the ₹4,190 mark it reached in December.

APSEZ closed up 5.61% at ₹488.40. It reached a intraday low of ₹395.

Also Read: Old Photo Of Placards Spelling Out 'Stop Adani' Revived Amid Stock Rout