Shares of India's largest life insurer and many banks plunged on Friday amid concerns about their exposure to the Adani Group that was recently accused by a US short-seller of stock manipulation and accounting fraud.
LIC, which held shares worth Rs 81,262 crore in the ports-to-power conglomerate's companies before the markets opened on January 25, witnessed a loss of Rs 18,645 crore in those holdings in the last two market sessions. The State Bank of India and nine other public sector lenders collectively saw Rs 50,571 crore being wiped out of their market cap on Friday.
"The sharp slump in the Indian market was triggered by an unfavourable research report on Asia's richest promoter group companies. This is also affecting the banking stocks even though the results of the sector are optimistic due to high group lending, indicating potential risk," Vinod Nair, Head of Research at Geojit Financial Services, said in a note. "PSU banks are the most impacted compared to private banks owing to high exposure."
Billionaire Gautam Adani's companies have seen the erosion of about Rs 4.2 lakh crore, or a fifth of their total market cap, after Hindenburg Research released the scathing report on January 24 and said it was shorting the group's shares. Shorting a stock is a bet that the share price will fall.
On Friday, as many as four of the group companies -- Adani Enterprises, Adani Transmission, Adani Green Energy and Adani Total Gas -- saw almost 20% of their share value slump on the S&P BSE Sensex Index. Some of the group's stocks also triggered their respective lower circuits, which meant that further stock trading was frozen until there were fresh buyers. The Sensex fell by 1.45% on Friday to make it the worst performer in Asia.
The slump came a day after the Adani Group said it was exploring legal action against Hindenburg for its accusations. The research firm stood by its report and said that it believed any legal action taken against them would be "meritless". "If Adani is serious, it should also file suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process," it added in a tweet on Thursday.
On Friday, Hindenburg's report was also given a thumbs up by renowned American billionaire investor and hedge fund manager Bill Ackman.
Adani group has been considered to be close to the Narendra Modi-led administration in India and this has also invited responses from the opposition party.
Senior Congress leader and Member of Parliament Jairam Ramesh on Friday questioned the government for turning a blind eye towards its "favourite business group".
Through a statement on Twitter, Ramesh also pushed key regulators such as the Securities and Exchange Board of India and the Reserve Bank of India to intervene and do a thorough investigation to safeguard the country's financial stability.
(With agency inputs.)