The rapid fall of Indian billionaire Gautam Adani has prompted a re-examination of the tycoon’s close ties with Indian Prime Minister Narendra Modi.
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The results of the turmoil on the Adani Group could have political implications for India, said the chief Asia-Pacific economist at research group Natixis.
While corporate governance issues concern countries all over the world, Adani’s case in India differs in that it’s “highly political,” Alicia Garcia Herrero told CNBC’s “Squawk Box Asia” on Tuesday.
She noted that this is very true now that the country’s Supreme Court has launched an investigation into the Adani Group’s allegations.
Indian billionaire founder Gautam Adani has been investigated after allegations in January by a US short-selling firm Hindenburg Research who accused the Adani Group of fraud.
Adani group has he denied any wrongdoing, but that did not stop the market rout that worn out about $140 billion in market value from the seven largest publicly traded corporations inside the conglomerate. Adani, India’s leading industrialist, has since lost his crown because the richest man in Asia.
Investor concerns about Adani’s management problems will likely be short-lived, Herrero said.
Nonetheless, the economist said the long-term political effects for India remain to be seen. Herrero said that given the close ties between Adani and Prime Minister Narendra Modi, it was still unclear whether the confusion could harm the Indian leader politically.
The image might be further complicated India’s presidency of the G-20 this 12 months.
“I might argue if it was obligatory to take things further and there [are] closer ties when it comes to how it’ll play out with Modi – that could develop into very difficult given the G20 and after all within the lead as much as the election,” Herrero said.
“So we have to look at since it form of goes beyond the group” when it comes to “what the implications could ultimately be for India,” she noted.
Under the probe
Her comments come later India’s Supreme Court last week arrange a panel to analyze whether there have been regulatory failings following the Hindenburg report related to allegations against the Adani Group.
India’s highest court also directed the country’s market regulator, the Securities and Exchange Board of India, to analyze “whether or not there was manipulation of share prices in violation of applicable laws,” the court’s ruling said. SEBI was ordered to finish its investigation inside two months and submit a standing report.
Adani’s demise sparked a re-examination of his close relationship with Modi. Each men are from the western state of Gujarat in India. Adani was an early supporter of Modi’s political aspirations and was an advocate Indian leader’s vision of development for the country.
Last month, billionaire investor George Soros said the turmoil in Adani would significantly weaken Modi’s power and result in a “rebirth of democracy” within the country.
“Modi and business tycoon Adani are close allies; their fates are intertwined. Adani Enterprises tried to lift funds on the stock exchange but failed” Soros said on the 2023 Munich Security Conference.
“Adani is accused of stock manipulation and his stock has collapsed like a house of cards. Modi is silent on the topic, but will have to reply questions from foreign investors and parliament.”
Adani Group didn’t reply to CNBC’s request for comment.
Interest of investors
Given the political tone of the Adani case, “we’re seeing very different behavior amongst investors,” Herrero said. Gulf and U.S. sovereign wealth funds appear to favor the struggling Adani Group, she added.
“We have sovereign wealth funds… mainly form of supportive, actually within the Gulf. After which we have specific investors within the US, as we have just heard,” Herrero said. She was referring to a recent investment by a US company GQG Partners, which bought shares with a $1.87 billion investment in 4 Adani portfolio corporations.
Rajiv Jain, co-founder and CIO of GQG Partners, which had $92 billion in assets under management at the tip of January, told CNBC that his firm is betting on the Adani group despite the continuing turmoil.
“Controversy is an element of how one can improve returns,” Jain told CNBC in an exclusive interview.
Asked whether India’s Supreme Court had ordered an investigation into Adani’s activities, Jain said the regulatory risk was “low”.
“Business regulation tends to involve risk… nothing is zero, but I believe it is a low enough probability for us to speculate.”
— Seema Mody of CNBC contributed to this report