Adani’s adversity raises the stakes for India and investors

Foreign investors, many of them already considering the stock market underweight, are reducing risk.

India’s central bank and stock market regulator swung into action after more than a week We short seller Hindenburg A research report on Adani Group brought down its shares saying they are probing irregularities and local bank exposure.

Sat Duhra, who manages the $1 billion Asian Dividend Income Fund at Janus Henderson Investors, said the Adani purge has the potential to be widespread if it triggers a larger mood change.

Watch full proceedings of the Adani-Hindenburg case here

“The indian stock market Indices are driven in large part by a small set of companies and any change in sentiment and flows will have an adverse impact on the indices as more liquid names are sold first,” he said.

“We own less than 2% Indian equity And would need to see a serious improvement before even considering adding, especially in light of recent issues.”

Since the Hindenburg Report of 24 January which alleges improper use Adani Group Also raised concerns about offshore tax havens and stock manipulation and high debt, seven listed market capitalization Adani Group Companies have fallen in half or about $100 billion. Its dollar bonds have fallen.

Analysts say the shock to the system for sure comes because of Adani’s clout and influence rather than risk aversion. His conglomerate spans ports, coal mines, food businesses, airports and more recently media, and earlier its seven companies accounted for more than 6% of the National Stock Exchange market value.

While Adani Group’s total gross debt stands at 2.2 trillion rupees ($26.86 billion), top banks have said their loan exposure to the group is small. The shares of the firm are closely held, the exposure to mutual funds is also low.

“Everyone is keeping a close eye on those loans,” said Pankaj Pathak, a fund manager at Quantum Asset Management. Mumbai, “But on the domestic debt side, we hardly see any impact on the broader corporate bond market because of what’s happening at Adani,” he added.

Still, India’s stock market is down 4% in 6 days, and foreign funds have sold $2 billion worth of shares since January 24, on top of the $2 billion sold earlier in January.

“It’s a panic issue, but we don’t think it’s going to turn into a credit issue,” said a credit fund manager in Hong Kong. WHO He could not be named as he was not authorized to speak to the media.

“Only the Adani group is trading with these ridiculously high multiples, and that is the crux of the problem.”

At its peak in December, flagship Adani Enterprises stock had gained 1,700% in two years.

regulatory concern

As regulators step in, banks are also distancing themselves, with Citigroup’s wealth unit saying it has stopped making margin loans to its customers against Adani Securities, and Credit Suisse has done the same, Bloomberg News reported. did.

Investors were selling and still looking for an opportunity to make a comeback.

Investment research firm TS Lombard said Adani’s allegations “has accelerated expectations of a fall in Indian equities as foreign investors rebalance their portfolios on China’s reopening” but that the fall will be limited for several reasons , including Adani being “too unique to fail”.

“At this point, I don’t think it’s a systemic risk,” said Jimmy Lim, chief investment officer at Modular Asset Management in Singapore. Lim’s fund is Indian stocks, and there was no exposure to Adani.

“Having said the above, I do not expect to see a quick resolution to the questions raised and thus reducing the risk associated with direct and indirect exposure to the name will likely be an ongoing period.”

David Chao, global market strategist at Invesco, also expects market volatility and volatility.

“We don’t think a default is going to happen anytime soon, although I don’t expect any near-term resolution between Adani Group and Hindenburg,” Chao said.

Nevertheless, Chao expects the selloff to help bring Indian stock valuations to more “palatable levels” for investors.

“The impact on the broader macro picture of Indians is limited. I think, ultimately, it is a fight between two traders.”

($1 = 81.8940 Indian Rupees)

(Additional reporting by Summer Jane in Hong Kong, Rai V and Ankur Banerjee in Singapore, Gaurav Dogra in Bangalore; Editing by Simon Cameron-Moore)

The text of this story is published from a wire agency feed without any modification.