Adani Incident Signals Investment Risks Remain in Emerging Markets
- January 31, 2023
- Posted by: Quatro Strategies
- Category: Politics
India has become one of the hotspots of investment recently as the country’s economy is set to grow 6.6% in fiscal 2023 according to World Bank estimates and its population poised to take over China’s as the world’s largest in 2023. The country’s stock market is expected to become the third biggest in the world before the end of 2030. As a result, investors from across the globe have started to flock New Delhi and Mumbai in recent months. But the recent $65 billion selloff at Adani Group is showing that risks still remain and how the country’s financial authorities tackle the situation could determine soon India’s reliability as an investment destination.
Overseas ownership of Indian shares has more than tripled to $683 billion since 2014, when Narendra Modi took over as prime minister. Foreigners now own about a fifth of all stocks, though their share has decreased slightly as domestic investors have piled in too.
Hindenburg Research’s allegations of fraud and stock manipulation towards Adani have been dismissed by the company but shares in Adani Green Energy and Adani Total Gas, a joint venture with France’s TotalEnergies, have still lost 40% of their value in the past three trading sessions. Many local investment managers have been staying away from Adani’s seven listed companies due to concerns over its tight ownership structure, heavy debt and high valuations.
Adani group’s $230 billion combined equity value prior to the stock rout means how officials react will send an important signal about the market’s maturity. India’s securities regulator has already urged credit rating agencies to instill better market discipline.
Shares of the Adani group companies have lost $65 billion since Jan. 25 after U.S. short-seller Hindenburg Research published a research note on the group. The Indian conglomerate’s response has failed to ease investor concerns.
State-controlled Life Insurance Corporation, India’s largest insurer which has invested more than $4 billion in the Adani group, said on Jan. 30 it is reviewing the conglomerate’s response to Hindenburg’s allegations and will hold talks with Adani’s management to seek clarifications.
Adani on Jan. 29 published a 413-page response to Hindenburg’s report, which alleged the Indian conglomerate was “pulling the largest con in corporate history” including “brazen stock manipulation and accounting fraud”.
In its response, the Adani group noted that over three quarters of the 88 questions Hindenburg posed relate to previously disclosed matters, and that the bulk of the remaining questions relate to public shareholders, for which listed companies are not required to have information. Adani added the short-selling campaign was “a calculated attack on India and its growth ambition.”
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