Starting March 8, Adani Enterprises, shares of the flagship company of the Adani Group, will be out of the National Stock Exchange's [NSE] Additional Surveillance Mechanism (ASM).
This was communicated by the NSE through a circular.
The company follows two companies of its group - Adani Ports and Special Economic Zones and Ambuja Cements - which exited the framework on February 13.
Adani Enterprises will leave the framework after being added to its short-term framework on February 3 alongside Aaron Industries, another scrip which meets the criteria to exit the framework.
However, as of March 7, Adani Green Energy Limited, Adani Total Gas and Adani Transmission Limited remain on the ASM's long-term framework.
The stock faced erratic fluctuations as part of a larger trend of the group's stocks being battered by the markets as a result report released by activist short-seller Hindenberg Research. Their report, released on January 25, accused the group of stock manipulation, fraud and corporate mis-governance. They revealed that they had shorted the stock through US-based securities.
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. Eventually, the proceeds of the offer were refunded.
Adani Enterprises is component of the NSE's benchmark NIFTY50 index. Adani Enterprises closed at ₹1,982.90, up 5.5% on the NSE
Though it has staged a strong recovery from the lows since February when it reached ₹1,017, it is still a far cry from the ₹4,190 mark it reached only in December.
What is the framework about?
A stock being added on the list is a signal by the exchange to investors to exercise caution while trading in them, either through more upfront margin to trade in them, or through shortened price bands. However, it should not be construed as an adverse action against that company.
The ASM framework has two variants based on duration: a long-term and short-term list. While the short-term list has two stages, the long term list has four.
The exchanges put companies on the list based on six criteria based on parameters like price-to-equity, beta of a stock (return with respect to the market), market capitalization, variation, client concentration and unique PANs.
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.
On the long-term list, the price bands (how much a stock can vary) and margins must back all transactions, depending on the stage. Margins are collaterals like cash, securities or assets to put up before transacting in a stock.
Being on the short-term list entails putting up 50% margin (or the prevailing one, whichever is higher) and seeking clarifications from the company for stage 1 and 100% for stage 2.
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