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Commentary

More NSEL: Adani Rumours, Brokers Palm off Exposure, SEBI Asks for Cross-Impact

More NSEL News. Please bear with me, this is a very big event and can have mega-implications for all investors.

Adani group stocks were beaten down today on rumours that a group company, Adani Agro, has an exposure to NSEL through another company called NK Securities. Adani Enterprises, Adani ports and Adani power all fell between 7% and 10%. However, Atul Chaturvedi, CEO of Adani’s Agro arm (Adani Wilmar), stated that he doesn’t have any dealing with NSEL and has said, “We have never heard of this NSEL and we have never dealt with NSEL ever in the past”.

Which would have been excellent news, except that no, I think they had definitely heard of NSEL, because one of NSEL’s contracts – the RB Palmolein one – is actually suffixed with “Ex-Adani Wilmar plant, Mundra”. The contract is settled directly at the plant, where buyers have to get their tankers loaded when settling the contract. The contract specification even tells you which Adani Wilmar person to contact. So I’m sure Mr. Chaturvedi has heard of NSEL, but would probably not want to remember.

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Meanwhile, the Forward Markets Commission (FMC) said the exchange is confident it can meet all obligations. From Business Standard:

Brokerages said chances of the payment crisis spreading were limited. A fifth of the Rs 5,500 crore locked in the NSEL debacle belongs to the clients of four large brokerages — India Infoline (Rs 250 crore), Motilal Oswal Financial Services (Rs 250 crore), Anand Rathi (Rs 300 crore) and Geojit Comtrade (Rs 300 crore).

Of course, these brokers won’t underwrite losses – they have to pass them on. And that will happen even if brokers did the trades using a power of attorney. Expect a lot of SEBI complaints.

“The broker is an intermediary… all the payment is to be made by the exchange to the client,” said Pradeep Gupta, vice-chairman, Anand Rathi.

“We are hopeful of a settlement soon. There is no obligation on the broker, who earns a small commission from the transaction,” India Infoline Managing Director R Venkataraman.

“There was no guarantee. Returns were calculated on the basis of possible arbitrage opportunities, such as the difference between cash and futures price,” said Motilal Oswal Financial Services CMD Motilal Oswal.

Meanwhile SEBI has asked brokers to reveal their exposure to NSEL. Obviously, a payments crisis anywhere affects their operations elsewhere.

Also ET says all spot exchanges will be brought into FMC regulation very soon. The horse has bolted, the door will now have a closing ceremony (but won’t actually be closed).

There are no pure sells in the bulk trade list for Friday, which probably means the biggest investors have not really exited the stock.