The crisis and scandal swirling around India’s mega-powerful Adani Group heightened this week as hundreds of members of India’s opposition parties took to the streets to demand an investigation into allegations by a US. short-seller against the conglomerate. It triggered the Adani Group share price to go into freefall.
Market losses have now exceeded US$110 billion according to media reports since Hindenburg Research accused the corporate giant of stock manipulation and accounting fraud in a January 24 report.
Also read: Can India survive Adani’s $100 billion collapse?
When Gautam Adani, boss of the Adani Group of companies, which spans power plants, ports, roads, airports, data centers, Wi-Fi networks, and more besides, scrapped a $2.4 billion share sale, and fell down to the world’s 21st-richest man on the Bloomberg Billionaires Index, real fears of a wider financial contagion took a foothold.
The Adani empire’s issues are causing such concern in large part because Gautam Adani has been a close ally of Indian Prime Minister Narendra Modi for decades. Indeed, his businesses are often at the front and center of Modi’s growth plans for the country.
“As a national champion, the tycoon has aligned his business interests with Modi’s development goals, often stepping in where the state lacks resources or competence, helping create thousands of jobs,” Bloomberg reports.
With questions now mounting about this hugely influential conglomerate and issues of regulatory frameworks, nepotism, governance and debt, India’s credibility among global investors is now hanging in the balance.
The concerns are especially badly timed as many major companies are currently eyeing India as an alternative to China as an investment destination. In response, Indian authorities have been rolling out generous incentives, including attractive subsidies for companies that migrate.
Clearly, the questions now being raised by global investors who have had their confidence in India shaken by the Adani storm are legitimate.
However, I would also urge them to keep an open mind on the opportunities on the subcontinent.
Despite the current furor, India is still set to overtake Japan and Germany to become the world’s third-largest economy, according to recent reports by S&P Global and Morgan Stanley.
S&P’s forecast is based on the projection that India’s annual nominal GDP growth will average 6.3% through 2030. Pretty impressive by any standards.
Similarly, Morgan Stanley predicts that India’s gross domestic product is going to be more than double current levels by 2031.
On a global level, growth is expected to slow from 3.4% in 2022 to 2.9% in 2023, with China and India accounting for 50% of global growth.
Now expected to grow by 7% by the end of 2023, India’s economy is showing strong resilience in the face of global tailwinds such as supply-chain issues, the reopening of China, Russia’s war in Ukraine, and the potential squeezing of demand for imports due to significant economic slowdowns in developed economies.
Much of this resilience is, we believe, due to huge domestic markets, a growing middle class, considerable supply-side reforms, a robust financial sector, the mass digitization of public and private sectors, and pro-business policies from the top.
In this environment, despite the Adani Group debacle, investors who want to build long-term wealth should remain open to the enormous potential of India.
Nigel Green is founder and CEO of deVere Group.