The Potential Ripple Effects of Adani Companies’ $100bn+ Selloff on India

Adani’s $100bn-plus market value loss due to its ongoing battle with short seller Hindenburg Research has the potential to adversely affect the economy and investment prospects of India. Despite the ongoing scandal, analysts suggest that potential wider implications of the situation can still be contained. The controversy began last month when Hindenburg published a report that accused Gautam Adani, the billionaire who heads the conglomerate, of operating “the largest con in corporate history”. Adani Group currently operates throughout sectors that are foundational to India’s economic wellbeing, however it maintains all compliant with Indian law and regulatory practices. Adani Enterprises has since cancelled its $2.5 billion follow-on public offering (FPO) despite positive investor interest in the company. Mr Adani has also assured the public about his financial stability.   Whilst there is some uncertainty around the ongoing situation, it is suggested that there are no foreseeable wider economic impacts outside of those related to Adani. “From the macro perspective, there are few signs of broader contagion,” said Shilan Shah, deputy chief emerging markets economist at Capital Economics. Others, like Anand Mahindra, chairman of Mahindra Group, have also dismissed potential effects on India’s economy. However, there has been widespread speculation over the impact of the ongoing scandal on India’s reputation as a destination for global investment. The crisis has raised questions over the various aspects of the Adani Group, such as its high level of debt and weak corporate governance issues. S&P credit rating agency has even cut its rating outlook on Adani Ports and Adani Electricity from stable to negative, citing “the risk of a deterioration in the credit profile of [the companies] due to governance risks and funding challenges for the larger Adani Group”. Concerns also remain over Adani’s overall banking system exposure, valued at $23bn to $24bn as of March 2022, as per data shared by Goldman Sachs.  However, analysts suggest that foreign investors will not be deterred from investing in the country.