A stress-test for India
A corporate scandal puts India in the spotlight. Matthew Partridge reports
It’s been three weeks since the Indian conglomerate Adani Group was accused by a shortseller of “pulling the largest con in corporate history” through alleged “stock manipulation, accounting fraud, and other malfeasance”, says Astha Rajvanshi for Time. Founder and chairman Gautam Adani has called the claims “stale, baseless, and discredited”, and says that his group’s balance sheet is “healthy” with a “robust” level of assets. The allegations have seen more than $100bn wiped from the group’s market value. It has also been forced to cancel a $2.5bn share sale. India’s markets regulator has confirmed it will be investigating, leading many to “wonder what will happen next”.
Overvalued, not insolvent
Even Adani’s harshest critics believe it is merely “overvalued” rather than insolvent, as it owns lots of “real, revenue-generating assets” even if they are in “staid, low-growth industries”, says The Economist. However, the increased scrutiny is “likely to delay some of its more extravagant investment plans, and perhaps derail a few”. What’s more, the accusations of “share-price manipulation and unconvincing auditing” cast an “unfavourable light on India’s stockmarket, corporate governance and regulatory practices”. The affair could pose an “ongoing test to India’s broader institutions – its political checks and balances, its press and civil society – a test they are not guaranteed to pass”.
Adani’s crisis comes at an inconvenient time for India and its leaders, says Megha Mandavia in The Wall Street Journal. The government of Narendra Modi is trying to “bulk up” India’s infrastructure to position itself as an alternative to China. The government is trying to do this through encouraging increased privatesector investment, to complement the role of the state, which as late as 2019 directly funded three-quarters of new projects. The controversy has already led many foreign partners, such as France’s TotalEnergies, to say they will wait for the result of audits before starting agreed ventures.
A splash, but the ocean remains calm
Adani’s woes are embarrassing for Modi given his “close ties” to Gautam Adani, and the reputation of India regulators has taken a knock, says Alex Travelli in The New York Times. Still, predictions of a collapse that would bring down the country’s capital markets, and with them the economy, already seem wide of the mark. The reaction of the overall Indian market has been “calm”, reflecting the fact that, although huge, Adani is “barely a splash from the big Indian bucket”, as the country is now home to about 1.5 million companies and a well-capitalised stockmarket. Experts agree that most of these are “clean, well-run franchises”.
All the indications suggest that Adani is an outlier, not representative of India Inc. as a whole, agrees Rakesh Sharma on Bloomberg. Its companies may not yet rank among global majors, but they are not “about to collapse in a heap of governance failures” either. Indeed, an analysis of the largest companies suggest that most, including Reliance Industries and the Tata Group, score higher than Adani in terms of governance, liquidity and leverage conditions.