Adani fallout could have political implications for India: economist

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The rapid downfall of Indian billionaire Gautam Adani has prompted a new investigation into the tycoon’s close ties to Indian Prime Minister Narendra Modi.

Punit Paranjpe | Afp | Getty Images

The Adani Group’s disruption to India could have political implications, said the chief Asia Pacific economist at Natixis, a research group.

While corporate governance issues affect countries around the world, what is different about Adani’s case for India is that it has a “political realism,” Alicia Garcia Herrero told ” Squawk Box Asia” on CNBC on Tuesday.

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This is especially true now, she noted, as the country’s Supreme Court has launched an investigation into the Adani Group’s allegations.

Indian billionaire founder Gautam Adani has come under scrutiny following allegations in January by US short-selling firm Hindenburg Research that it accused the Adani Group of companies of fraud.

The Adani Group has denied any wrongdoing, but that did not stop the market from wiping out about $140 billion in market value from the seven largest listed companies under the conglomerate. Adani, India’s leading businessman, has since lost his crown as Asia’s richest man.

Investor concerns about Adani’s management problems are likely to be short-lived, Herrero said.

However, the long-term political outcome for India remains to be seen, the economist said. Given the close ties between Adani and Prime Minister Narendra Modi, it remains unclear whether the disruption could hurt the Indian leader politically, Herrero said.

The picture could be more complicated with India’s presidency of the G-20 this year.

“I would argue, if things need to be pushed further then and there [are] closer ties, in terms of how this falls out with Modi – it can be very difficult, with the G-20 and of course, before the election,” said Herrero.

“That’s why we have to look because it goes beyond the group in a way of ‘regarding’ what the impact of India might be in the end ,” she said.

Under probe

Her comments come after India’s Supreme Court last week set up a panel to investigate whether there were management failures related to allegations against the Adani Group, following the Hindenburg report.

India’s top court also ordered the country’s markets regulator, the Securities and Exchange Board of India, to investigate “whether there was any manipulation of stock prices in violation of existing laws,” the court order said.SEBI was ordered to complete the investigation in two months and file a status report.

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Adani’s collapse has prompted a fresh probe into its close ties to Modi. Both men come from the western Indian state of Gujarat. Adani was an early supporter of Modi’s political ambitions and supported the Indian leader’s growth vision for the country.

Last month, billionaire investor George Soros said the Adani disruption would significantly weaken Modi’s grip on power and lead to a “democratic renaissance” in the country.

“Modi and businessman Adani are close relatives; their destinies are intertwined. Adani Enterprises tried to raise money in the stock market, but it failed,” Soros said at the Security Summit Munich 2023.

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

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

Investor’s interest

Given the political overtones of the Adani case, “we’re seeing very different behavior across the investor landscape,” Herrero said. Sovereign wealth funds in the Gulf and the United States appear to be more favorable to the Adani Group, she said.

“We have sovereign wealth funds … basically in a way that supports, certainly in the Gulf. And then we have special investors in the US as we just heard,” said Herrero. She was referring to the recent investment by US-based GQG Partners, which bought shares worth $1.87 billion as an investment in four Adani portfolio companies.

CIO Rajiv Jain of GQG Partners on his investment thesis for the Adani Group

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

“Controversy is part of how you get better results,” Jain told CNBC in an exclusive interview.

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

“Business management tends to be a risk … nothing seems to be zero, but I think it looks low enough for us to invest.”

— CNBC’s Seema Mody contributed to this report

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