Brokers stare at losses as Adani stocks remain shaky

Feb 15, 2023

Brokers stare at losses as Adani stocks remain shaky

Brokers who have provided funding to clients against shares of Adani group stocks are staring at losses worth hundreds of crores.

This is because a number of the group’s shares — Adani Green Energy, Adani Transmission, Adani Wilmar, Adani Power and Adani Total Gas — have been hitting the lower circuit almost every day since January 25. This means trading has stopped in these shares for the most part and brokers are unable to offload shares in the market as there are no buyers.

Flagship Adani Enterprises recovered to end 1.25% higher to close at Rs 1,584 after slipping over 25% intraday. The shares had tanked 26.5% on Thursday and 27% on February 1. ACC, Ambuja Cements and Adani Ports & SEZ also ended in the green.

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Other stocks, however, continued to hit their lower limits. Adani Transmission and Adani Green Energy tanked by 10%, while Adani Total Gas, Adani Power and Adani Wilmar were down 5% each. Experts suggest that if the stocks continue to hit lower circuits, brokers will be staring at naked positions, with prices falling below the amount lent to clients, resulting in losses for brokers.

Margin against shares is offered by brokers to traders wanting to take leveraged bets.The broker takes the stocks as collateral and lends funds to trade on a short-term basis.

“Some of the Adani Group stocks are hitting the lower circuit every day. Suppose if someone was holding Adani Green shares and there’s a margin call. In normal circumstances, the broker can sell the shares if the client is unable to bring additional funds. But in this case, the broker won’t be in a position to liquidate the shares because there are no buyers,” said a senior industry official.

Let’s say the broker had set a 50% funding limit on a share collateral of Rs 10 crore of Adani shares. Once the share value of these falls below Rs 5 crore, it will trigger margin calls. The broker will call for additional funds or will resort to selling the shares available with it to meet the shortfall. If the broker is unable to sell, it will have to meet the shortfall on its own.

Brokers could also face issues in their margin trading facility (MTF) books. Those offering MTF have already increased the margin requirements on Adani Group stocks in the past few days to as high as 70-80%, said people in the know. One leading broker has put Adani Enterprises in its no funding list.

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“We were not providing MTF facility against most of the Adani Group stocks, except Adani Ports and Adani Enterprises, and that too with a very high margin. That may not be the case with the rest of the industry,” said Ashish Rathi, whole time director, HDFC Securities.

“If you look at Adani Total Gas, the stock has been falling without volume. It’s difficult to exit. Even if you have a margin with a 20-25% haircut you can’t liquidate that stock,” he said.