Adani’s collapse could have political implications for India: The Economist

The rapid downfall of Indian billionaire Gautam Adani has prompted a re-examination of the tycoon’s close relationship with Indian Prime Minister Narendra Modi.

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Natixis’ chief Asia-Pacific economist said the ramifications of the Adani group’s turmoil could have political ramifications for India.

While corporate governance issues affect countries globally, what makes the Adani case different for India is that it is “highly political,” Alicia Garcia Herrero told CNBC’s “Squawk Box Asia” on Tuesday.

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This is especially true now, he said, since the country’s Supreme Court has started an inquiry into the Adani Group’s allegations.

Indian billionaire founder Gautam Adani came under scrutiny in January after US short-selling firm Hindenburg Research accused the Adani Group of companies of fraud.

Adani Group has denied any wrongdoing, but it has not stopped the market, which has wiped out about $140 billion in market value for the seven largest listed companies within the conglomerate. India’s leading industrialist Adani has lost his crown as Asia’s richest man.

Investor concerns about Adani’s governance issues may be short-lived, Herrero said.

However, the long-term political downside for India is still looming, the economist said. Given the close relationship between Adani and Prime Minister Narendra Modi, it remains to be seen whether the unrest could hurt the Indian leader politically, Herrero said.

India’s chairmanship of the G-20 this year could further complicate the picture.

“If things were to be pushed further, I would argue [are] close ties, depending on how it goes with Modi – that could be very difficult given the G-20 and of course before the elections,” Herrero said.

“So we have to watch because it goes beyond the group in terms of ‘what could be the implications for India at the end of the day,'” he said.

Under review

His comments came after India’s Supreme Court last week set up a commission to look into allegations of regulatory lapses against the Adani group following the Hindenburg report.

India’s top court also directed the country’s markets regulator, the Securities and Exchange Board of India, to investigate “whether there is any manipulation of stock prices contrary to existing laws,” the court order said. SEBI has been directed to complete the investigation and submit a status report within two months.

Adani Group Saga: Indian Market Tested

Adani’s fall has prompted a re-examination of its close relationship with Modi. Both hail from the western state of Gujarat, India. Adani was an early supporter of Modi’s political aspirations and supported the Indian leader’s growth vision for the country.

Last month, billionaire investor George Soros said the unrest at Adani would weaken Modi’s rule and lead to a “democratic revival” in the country.

“Modi and business tycoon Adani are close allies; their fortunes are closely linked. Adani Enterprises tried to raise funds in the stock market, but it failed,” Soros said at the 2023 Munich Security Conference.

“Adani has been accused of stock manipulation and its shares have fallen like a house of cards. Modi is silent on the subject, but he will have to answer questions from foreign investors and parliament.”

Adani Group did not respond to CNBC’s request for comment.

Investor interest

Given the political overtones of the Adani case, “we’re seeing a very different behavior in the investor landscape,” Herrero said. Sovereign wealth funds in the Gulf and the US appear to be more in favor of the Adani group, he added.

“We have sovereign wealth funds … mainly, of course, to support the Gulf. And then, as we heard, we have real investors in the US,” Herrero said. He cited a recent investment by US-based GQG Partners, which bought stakes in four Adani portfolio companies for a $1.87 billion investment.

Rajiv Jain, CIO of GQG Partners in his Adani Group investment thesis

In late January, Rajiv Jain, founder and CIO of GQG Partners, which has $92 billion in assets under management, told CNBC that his company was betting on the Adani group despite the ongoing turmoil.

“Controversy is part of being successful,” Jain told CNBC in an exclusive interview.

When asked about India’s Supreme Court ordering a probe into Adani’s business, Jain said the regulatory risk was “low”.

“Business regulation is like risk … nothing is zero probability, but I think it’s a good enough probability for us to invest.”

— CNBC’s Seema Modi contributed to this report

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