Investors in Adani Group, the ports-to-data-centres conglomerate owned by Indian billionaire Gautam Adani, have grown accustomed to mouth-watering gains since 2020.
But, recently, they have been faced with a panic-inducing reality. On 24 January, US short-seller Hindenburg Research published a report report Hindenburg Research Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History Read more accusing the company of stock-price manipulation and accounting fraud.
Over the next two trading days, the ten listed Adani companies lost a staggering Rs 4.17 lakh crore (~US$51 billion)—one-fifth of their market value.
The ramifications of this meltdown are both immediate and far-reaching.
The group’s flagship Adani Enterprises Ltd’s failure to pull off its ongoing Rs 20,000 crore (~US$2.5 billion) share sale will impede its efforts to bankroll its new businesses, including roads, metals, and green hydrogen. Additionally, the Hindenburg report could make investors wary of the group’s future fundraising attempts.
What’s more, the weightage of Adani stocks on the MSCI India Index, which foreign investors closely track, could be reduced. If the slide in their prices continues, they could be dropped from this and other indices, including the Nifty 50. This could result in passive funds passive funds Passive funds A passive fund is an investment vehicle that tracks a market index, or a specific market segment, to determine what to invest in. Unlike with an active fund, the fund manager does not decide what securities the fund takes on. pulling out millions of dollars from Adani companies. If the weightage of the eight Adani stocks in the MSCI index were to be reduced by half, they could see outflows of US$1.5 billion, according to one estimate estimate The Economic Times $1.5 billion outflows likely if Adani group’s weight in MSCI index halved: Nuvama Read more .
It’s not just Adani companies that will be singed in the process. As of March 2022, according to a recent report by global brokerage CLSA, banks had lent over Rs 81,000 crore (~US$9.9 billion) to the top five Adani companies.
The government should also be concerned. Public-sector banks have enormous exposure to Adani companies, and state-owned Life Insurance Corporation of India Ltd’s (LIC’s) investments in Adani companies were worth Rs 72,270 crore (US$9 billion) as of 24 January.
