The rapid downfall of Indian billionaire Gautam Adani has prompted renewed scrutiny of the tycoon’s close ties to Indian Prime Minister Narendra Modi.
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The fallout from the Adani Group turmoil could have policy implications for India, said a chief Asia-Pacific economist at Natixis.
While corporate governance issues affect countries around the world, what is different about the Adani case for India is that it is “highly political,” Alicia Garcia Herrero told “ Squawk Box Asia” from CNBC.
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This is especially true now, she noted, since the country’s Supreme Court has opened an investigation into the Adani groupthe allegations.
Indian billionaire founder Gautam Adani is under scrutiny after allegations in January from a US short-selling firm Hindenburg Research who accused the Adani group of companies of fraud.
The Adani Group has denied any wrongdoingbut that did not prevent the market rout that wiped out about $140 billion in market value of the seven largest listed companies in the conglomerate. Adani, India’s largest industrialist, has since lost his crown as the richest man in Asia.
Investor concerns about Adani’s governance issues are likely to be short term, Herrero said.
However, the long-term political fallout for India remains to be seen, the economist said. Given the close ties between Adani and the Prime Minister Narendra Modiit’s still unclear whether the turmoil could hurt India’s leader politically, Herrero said.
The picture could be further complicated by India’s G-20 Presidency this year.
“I would say that if you have to take things further and there [are] closer ties, in terms of how it goes with Modi – it can become very difficult, given the G-20 and of course, with the election coming up,” Herrero said.
“That’s why we have to watch, because it goes beyond the group in a way” in terms of “what the consequences for India could possibly be,” she noted.
Under probe
His comments come after India’s Supreme Court last week formed a panel to investigate whether there were any regulatory failures related to allegations against the Adani Groupafter the Hindenburg report.
India’s top court also ordered the country’s market regulator, the Securities and Exchange Board of India, to investigate “whether there has been any manipulation of share prices in violation of applicable laws”, the order says. of the court. SEBI was ordered to conclude the investigation in two months and file a status report.
Adani’s fall triggered renewed scrutiny of his close ties to Modi. Both men are from the Indian state of Gujarat in western India. Adani was an early supporter of Modi’s political aspirations and championed the The growth vision of the Indian leader for the country.
Last month, billionaire investor George Soros said that Adani’s Bustle will significantly weaken Modi’s grip on power and lead to “democratic renewal” in the country.
“Modi and business tycoon Adani are close allies; their fate is linked. Adani Enterprises tried to raise funds on the stock market, but failed,” Soros said at the Munich Security Conference in 2023.
“Adani is accused of stock market manipulation and his stock collapsed like a house of cards. Modi is mum on the subject, but he will have to answer questions from foreign investors and parliament.”
The Adani Group did not respond to CNBC’s request for comment.
Investor interest
Given the political overtones of the Adani case, “we see a very different behavior in the investor landscape,” Herrero said. Gulf and US sovereign wealth funds appear to be more supportive of the beleaguered Adani Group, she added.
“We have sovereign wealth funds…essentially in a certain way, certainly in the Gulf. And then we have specific investors in the United States, as we just heard,” Herrero said. She was referring to the American company’s recent investment GQG Partners, which bought shares worth $1.87 billion worth of investment in four Adani portfolio companies.
Rajiv Jain, co-founder and CIO of GQG Partners, which manages $92 billion in assets as of late January, told CNBC that his company is betting on the Adani Group, despite the ongoing unrest.
“Controversy is part of how you get better returns,” Jain told CNBC in an exclusive interview.
Asked if India’s Supreme Court ordered an investigation into Adani’s activities, Jain said the regulatory risk was “low”.
“Business regulation tends to be a risk…nothing is a zero probability, but I think it’s a low enough probability for us to invest.”
– CNBC’s Seema Mody contributed to this report