We have been looking at mutual fund exposure of stocks which have of late have fallen from grace. It could be liquidity problems, issues concerning management or some adverse regulatory action resulting in a big fall. The latest to join this list is J.Kumar Infraprojects Ltd. (JKIL). On Monday, the stock fell 20% and closed at the 52-week low of Rs 164.40 after SEBI directed a forensic audit of the construction engineering firm. An analysis of MF exposure to the crisis-hit firm shows many infrastructure funds holding that stock. Read on.
J. Kumar Infra Projects Ltd, founded in 1980, got listed on BSE & NSE on Feb 12, 2008 by raising Rs 71.5 crore. The company started from humble origins nearly four decades ago when Jagadishkumar Gupta founded J. Kumar Infra Projects with a contract amounting to Rs 15,000. Over the years, it had worked in DMRC projects, UPRNNL projects, Ahmedabad Metro project, and Mumbai Metro projects.
SEBI is in favour of the appointment of an independent auditor for the forensic audit of J.Kumar Infraprojects Ltd. It figures among the 331 suspected shell companies. The auditor will verify misrepresentation, including financials and business activities of the company. The auditor will also look into the role of key management personnel, directors and promoters. There are concerns that JKIL may have faced misuse of its books of accounts or funds, or compromise of minority shareholder interest with respect to its dealings with PACL Ltd.
Do remember that J.Kumar was one of the listed entities that SEBI had placed in a restricted trade category in August 2017, after it was among the list of shell companies identified by the Ministry of Company Affairs and Serious Fraud Investigation Office.
Mutual funds play
|MF exposure to J Infra Projects|
|Fund||% Net Asset||Amount Invested (Rs Cr)||No. of Shares|
|HDFC Balanced Advantage Fund||0.14||54.55||2105308|
|HDFC Infrastructure Fund||2.79||27.56||1063625|
|Aditya Birla Sun Life Small Cap Fund||0.96||22.22||857777|
|HDFC Hybrid Equity Fund||0.09||21.35||824000|
|UTI Infrastructure Fund – Regular Plan||1.33||19.85||766000|
|IDFC Infrastructure Fund – Regular Plan||1.36||15.03||580000|
|Aditya Birla Sun Life Infrastructure Fund||1.25||8.82||340500|
|IDFC Equity Opportunity Series 4 – Regular Plan||2.02||4.66||180000|
|Templeton India Equity Income Fund||0.39||4.09||157959|
|HDFC Children’s Gift Fund||0.15||3.55||137040|
|Templeton India Value Fund||0.55||3.38||130370|
|Aditya Birla Sun Life Dual Advantage Fund Series 1 – Regular Plan||0.62||0.48||18400|
|Aditya Birla Sun Life Capital Protection Oriented Fund – Series 29 – Regular Plan||0.48||0.33||12700|
|Aditya Birla Sun Life Regular Savings Fund||0.01||0.28||10746|
|Aditya Birla Sun Life Capital Protection Oriented Fund – Series 30 – Regular Plan||0.46||0.11||4400|
|ICICI Prudential S&P BSE 500 ETF||0.02||0||27|
|Source: Value Research, as of August 31, 2018|
It is clear that there were some serious concerns about JKIL. So, why did fund managers stay in this stock despite these problems is something that AMCs must answer.
Looking at the MF exposure, it seems that as on August 31, J.Kumar Infraprojects shares were in portfolios of infrastructure funds, small-cap funds, dividend yield funds, multi-cap funds, value funds, aggressive hybrid funds, conservative hybrid funds and dynamic asset allocation funds.
In the multi-cap space, IDFC Equity Opportunity Series 4 – Regular Plan held 180,000 shares or 2.02 percent stake in JKIL as on August 31.
As many as four infrastructure funds held JKIL shares. These include HDFC Infrastructure Fund, UTI Infrastructure Fund, IDFC Infrastructure Fund and Aditya Birla Sun Life Infrastructure Fund. Exposure was limited to 1-3% range of fund’s assets.
In the smallcap space, 340,500 JKIL shares were held by Aditya Birla Sun Life Small Cap Fund. Among dividend yield schemes, Templeton India Equity Income Fund as on Augsut 31 had exposure to the stock. Templeton India Value Fund, a value fund from the Franklin Templeton stable, also had exposure to JKIL stock.
Among hybrid funds, HDFC Hybrid Equity Fund, HDFC Children’s Gift Fund, Aditya Birla Sun Life Dual Advantage Fund Series 1, Aditya Birla Sun Life Capital Protection Oriented Fund – Series 29, Aditya Birla Sun Life Regular Savings Fund, Aditya Birla Sun Life Capital Protection Oriented Fund – Series 30 and HDFC Balanced Advantage Fund were exposed.
Investors are advised to check with AMCs whether the exposure to JKIL shares are fully hedged or not. Also, the data analysis mentioned is based on latest portfolio ie August 31 end. Schemes could have exited or added positions in the ensuing 30 days.
The Whole Time Member, Securities and Exchange Board of India has passed an interim order dated September 28, 2018 in which it has recorded certain prima facie findings against the company on the basis of some prima facie materials. This order is not a final order and SEBI vide the said order has asked the exchange to appoint an independent forensic auditor to conduct the forensic audit of the company for limited transactions as recorded in the order. All the documents which were asked by SEBI were duly provided by the company except certain documents which were more than eight years old and so were not in possession of the company, JKIL said.
JKIL claims that from the SEBI order it is clear that the company is not a shell company and it will have no consequence or embargo on the liquidity of the trading of the company on the stock exchange and the order shall have no consequence on the trading in the scrip of the Company.
JKIL is taking legal advice in the matter and management of the company is confident that findings of the order will be set aside upon proper appreciation of the facts and circumstance by SEBI, the company statement said.