Adani probe may worsen global funds’ exit from Indian equities

By Chiranjivi Chakraborty and Abhishek Vishnoi

An unprecedented bribery charge from US prosecutors against India’s largest corporate group is threatening to deepen the record exodus of global funds from the nation’s equities.

Adani Group’s shares lost nearly $27 billion in market value Thursday after US federal prosecutors accused its billionaire founder and other executives of allegedly plotting to bribe Indian government officials to win solar energy contracts. That may exacerbate the outflows from overseas investors who have already offloaded $14 billion of stocks since the end of September, including a record amount last month.

Although the Adani Group has limited sway over India’s $4.4 trillion stock market due to its relatively low weighting in the main equity gauges, the indictment will likely raise fresh doubts about corporate governance in the country. These new concerns add to existing worries about the slowdown in the earnings momentum that have pushed the main NSE Nifty 50 Index to a five-month low.

“The US charges on Adani Group could further spark risk-off sentiment,” said Nitin Chanduka, a strategist at Bloomberg Intelligence. India’s market is already “grappling with the sharpest earnings downgrades since the pandemic, with rich valuations resulting in a strong foreign exodus,” he said.

Adani has denied the allegations, calling them baseless, and announced plans to seek legal recourse.

The Nifty 50 Index has retreated about 11% since climbing to record highs in late September due to the foreign outflows and a series of downgrades from the likes of Goldman Sachs Group Inc. and Citigroup Inc. What began as a “sell India, buy China” trade has now stoked fears over slowing economic growth, stubborn inflation and cooling consumer demand.

To be sure, Indian equities have shown resilience to sudden shocks, such as the impact of the 2023 Hindenburg Research’s report accusing Adani of corporate fraud and the recent Middle East tensions. Flush with cash, local institutions have come out swinging to support the stock market at every dip, buying more than $50 billion of shares on a net basis this year — a record.

Additionally, strategists see the South Asian country as a haven should US President-elect Donald Trump implement his election pledges on raising global tariffs.

Still, the economic backdrop today is weaker than in previous periods when Indian stocks sprung back almost immediately after a selloff. With the MSCI India Index trading at 22 times one-year forward earnings — a premium to its long-term mean — the chances of a rapid rebound are slim.

“The impact of these Adani charges from US prosecutors will primarily be on market sentiment,” said Homin Lee, senior macro strategist at Lombard Odier in Singapore. “In our view, macro will be a bigger driver as growth has been decelerating a bit due to a cooling credit impulse and somewhat tight monetary policy.”