The difficulties of Adani Group, one of India's industrial flagships, have shone the spotlight on India, which aims to be an economic alternative to China.
The empire built by billionaire Gautam Adani, 60, holds mines, ports, power plants and data centers in India. It owns a dozen commercial ports and is present in coal, electricity and renewable energy. It also has diversified into airports, data centers and defense.
The company also recently entered the cement sector by buying assets of cement manufacturer Holcim in India and is also looking to set up an aluminum factory.
Adani has grown the group by acquiring companies with debt. Adani Group’s total gross debt reached 2.2 trillion Indian rupees ($26.8 billion) as of the end of March 2022. The figure is included in the group's response to the allegations against it laid by the short-selling investment firm Hindenburg Research.
He had also made this year the year of international expansion. Adani Group had recently finalized the takeover of the Port of Haifa in Israel for $1.15 billion.
Foreign Investors Pull Out
All those dreams are in jeopardy after the publication of the scathing report by Hindenburg, which accuses Adani Group of fraud and deficiencies in governance. Adani Group denied the charges in a 413-page report and threatened legal action.
But these denials have failed to reassure investors, especially foreign investors, and a crisis of confidence has therefore set in.
Adani Group's stock-market rout has cost India its place among the world’s five biggest stock markets, while the rupee is the worst-performing emerging Asian currency this year, according to Bloomberg News.
Foreigners have pulled out $3.8 billion from the nation’s equities in 2023, the most among emerging Asian markets, excluding China.
Adani Group had created its meteorite rise by taking advantage, according to experts, of the country's development ambitions put forward by Prime Minister Narendra Modi.
Modi has been silent, at least for now, on the setbacks of Gautam Adani, with whom, the local press says, he is close. The political opposition is taking the opportunity to put pressure as Modi plans to run for a third term in 2024.
But questions are becoming more and more insistent about the exposure of the country's financial institutions to the Adani conglomerate.
Aware of the nervousness of investors, Indian financial authorities and the country's billionaires are taking steps to reassure them. The Security and Exchange Board of India was keen to defend the Indian markets over the weekend.
"The Indian financial market as represented by Sensex and Nifty has demonstrated ongoing stability and is continuing to function in a transparent, fair and efficient manner," the SEBI said in a statement on Feb. 4.
'Never, Ever Bet Against India': Mahindra
The Sensex is the benchmark index of the BSE, previously known as the Bombay Stock Exchange, while the Nifty 50 is the flagship index of the National Stock Exchange of India.
"During the past week, unusual price movement in the stocks of a business conglomerate has been observed. As part of its mandate, SEBI seeks to maintain orderly and efficient functioning of the market and has put in place a set of well defined, publicly available surveillance measures," the authority added without citing the name Adani Group.
India's central bank also sent a similar message.
"There have been media reports expressing concern about the exposures of Indian banks to a business conglomerate," the Reserve Bank of India said in a statement on Feb. 3. "As per the RBI’s current assessment, the banking sector remains resilient and stable. Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy."
The central bank added that it "remains vigilant and continues to monitor the stability of the Indian banking sector."
For their part, Indian billionaires spoke directly to foreign investors, who could be prompted not to invest in India because of the Adani Group's difficulties.
"Global media is speculating whether current challenges in the business sector will trip India’s ambitions to be a global economic force," the billionaire Anand Mahindra, chairman of Mahindra Group, wrote on Twitter. "I’ve lived long enough to see us face earthquakes, droughts, recessions, wars, terror attacks. All I will say is: never, ever bet against India."
"I do not see systemic risk to Indian financial system from recent events," the billionaire Uday Kotak, CEO of Kotak Mahindra Bank, asserted. "However, large Indian corporates rely more on global sources for debt and equity finance. This creates challenges and vulnerabilities."
Kotak concluded that it's "time to further strengthen Indian underwriting and capacity building."
The question of whether these messages will put out the two-week fire engulfing Adani Group remains open.
