Market views: Will the Adani indictment impact India investments?
Gautam Adani, the Indian tycoon who oversees the Adani Group—India's largest conglomerate with businesses ranging from infrastructure to mining—faces charges from US prosecutors over alleged involvement in a $250 million bribery case.
The charges forced the group to cancel its planned $600 million bond sale for its green energy business and sent its shares tumbling.
This marks the second governance crisis in two years for the group, following the 2023 Hindenburg report that accused Adani of accounting fraud and stock manipulation, which halved the group's stock price and erased $150 billion of its market value.
As these new allegations unfold in what could be a years-long legal battle, experts warn that foreign investors might hesitate to enter the market, concerned about politically connected players manipulating the system.
Yet some experts suggest the indictment could ultimately benefit India's investment climate by challenging the Adani Group's market dominance and creating opportunities for other players.
AsianInvestor asked fund managers and analysts how these developments might effect the outlook for India's investment market and what opportunities and risks investors should be on the lookout for?
The following responses have been edited for clarity and brevity.
James Thom, senior investment director of Asian equities
abrdn
We believe the Adani news is unlikely to develop into a systemic risk to the market, as the majority of Adani’s funding comes from offshore financing, and the Group has taken steps to deleverage over the last 18 months.
Several of the group’s companies also generate healthy cash flows. However, the charges against Adani could affect foreign investor sentiment towards India at a time when we are seeing some pullback in the market.
Various factors are driving that, including a temporary slowdown in the pace of earnings growth. We are closely watching that and would expect that pace to recover in 2025.
Having said that, domestic investors have continued to back the Indian market, with net flows into the market for 14 consecutive months.
The outlook for India is still positive – one of the world’s fastest-growing major economies that is supported by a resilient macro backdrop.
Growth momentum continues to be driven by supportive government policies following a decade of painful, but necessary economic reforms.
There are some near-term external risks, including the implications of Trump 2.0 on Indian exports, as well as potentially higher energy prices and a slowdown in global economic growth.
The key to leveraging this market’s potential is bottom-up stock picking backed by fundamental research. The best way to position would be in high quality and defensive names with better balance sheets, cash flow generation capabilities, and are backed by long-term structural tailwinds.
Alexander Treves, head of emerging markets and APAC equities investment specialists
JP Morgan Asset Management
The recent developments could temporarily be somewhat challenging to the sentiment to the overall Indian equity market.
While we expect some near-term volatility, we believe the medium to long term outlook remains robust.
Although headline valuations have remained elevated over the past few years, we find both pockets of exuberance and also emerging opportunities.
The more recent sell off may provide opportunities to enter names where valuations are now more reasonable.
We are particularly constructive on financials, consumer discretionary, and industrials, supported by several factors: blue-collar job creation, fixed capital formation, and premium and discretionary consumption.
The expenditure on improved infrastructure is also highly encouraging.
The investment universe of the India equity market has materially changed in recent years, expanded, and deepened, and this provides an attractive backdrop for stock selection for those with the expertise to investigate the market deeply.
Ivy Ng, chief investment officer, APAC
DWS
Overall, the long-term outlook for Indian infrastructure remains positive.
However, in the short term, the central government is focused on reducing budget deficits and also facing execution issues, with capex in the first half of the year falling well behind budget, making it likely that 11% growth target for the year will be missed.
In addition, state governments are shifting from capex to welfare spending, influenced by recent elections where voters favoured income transfer schemes.
This trend is expected to continue and expand across the country in the coming years. It is hoped that any reduction in government capex will be offset by an increase in private corporate capex and a sustained real estate cycle.
First of all, I don’t think the short-term market weakness has much to do with Adani. Earnings has been weak and the market is worried about potential misses again in December.
Valuation is still on the expensive side, even after recent adjustment. There is also an overarching overhang on India and EM in general under a Trump presidency.
It may restrict the Group's funding options for some time. The extent and duration of this impact will depend on the outcome of the US investigation.
It's possible that the Adani group will become less aggressive in bidding for infrastructure projects and expanding its recently acquired cement capacity. This could create better opportunities for others.
However, I don't think Adani will initially crowd out other players from projects as there is currently a lot of activity in India at the moment and there are plenty of opportunities to go around. In addition, local banks may still be willing to finance some Adani projects.
Deepika Mundra, director, equity research India
M&G Investments
India’s path to achieving a $7 trillion GDP by 2030 hinges on significant infrastructure investment.
Central and state governments are driving this effort across highways, rail, water, social infrastructure, and defence, with support from multilateral agencies.
Transport capex is already at elevated levels, the pace will likely be more steady. Investments will pick up in power and digital economy including datacentres.
The sentiment remains positive for the next 5 to 7 years, as the sector continues to be a government priority with several large-scale projects underway.
However, sustained economic growth and fiscal discipline will be critical to maintaining capital expenditure. This dynamic creates long-term growth opportunities for construction and equipment companies in the private sector.
The private sector’s role in large-scale infrastructure remains limited but is gaining prominence in airports and power, particularly renewables. Increased investment in power generation and transmission reflects the broader growth in manufacturing, data centres, and the adoption of electric appliances and vehicles.
India’s ambitious goal to expand renewable energy capacity from ~150 GW to 500 GW by 2032 will require a collaborative effort between public sector undertakings (PSUs) and private sector utilities, rather than reliance on any single entity.
A substantial pipeline of projects is already in place, supported by a domestic supply chain for solar and wind equipment. Ensuring the availability of funding and managing credit spreads will be key, although public sector companies are generally well-positioned to navigate these challenges.
The outlook for investments and opportunities in the power sector value chain remains robust, with funded projects expected to proceed as planned. That said, accessing overseas funding for new projects may present challenges.