The Adani saga – answers to some of the key questions for foreign investors The Adani saga – answers to some of the key questions for foreign investors The Adani saga – answers to some of the key questions for foreign investors

The Adani saga – answers to some of the key questions for foreign investors

Equities 4 minutes to read
Charu Chanana 400x400
Charu Chanana

Head of FX Strategy

Summary:  India’s corporate governance has come back in focus with the Adani rout, alarming foreign investors who had been looking at India as a potential long-term opportunity especially with a shift away from China. While the extent of collateral damage can be contained and Modi’s popularity will be protected by a lack of coherent opposition, the key concern on how deeply the investor confidence gets dented and whether markets start to question India’s premium valuation.

The Adani saga continues to unfold, after Hindenburg Research accused the conglomerate of stock manipulation and accounting fraud. The group has lost over $50 billion in market value since, with Adani Enterprises down over 20%. If MSCI decides to reduce or remove the eight Adani group and associate stocks that are constituents of MSCI India Index, there will be potentially be more outflows to be seen. Adani’s rebuttal appeared to fall short to assuage investor concerns.

Key questions that are of relevance for a global audience include:

  1. the extend of collateral damage, especially the impact on Indian banks,
  2. whether Modi’s popularity could plunge, and
  3. the impact on foreign investor confidence

Collateral damage to remain contained

At least 40% of the group’s debt is exposed to Indian banks, with a substantial part with Life Insurance Corp. of India as well. Reports suggest that as much as 8% of LIC’s equity assets under management, amounting to a sum of INR 740 billion, were invested in the Adani Group of companies. This suggests that a case for collateral damage is significant.

The NSE Bank Nifty has underperformed the broader stock indices in the last 3 trading days, with public sector banks such as the State Bank of India being one of the biggest decliners. Ripple concerns on PSU banks remain the most likely given their high loan exposures to a single entity means financial stability risks in the system.

Beyond the banking sector, systemic risks may be limited as India’s demographic advantage and mass urbanization continues to underpin a positive outlook for the markets.

Modi’s popularity may take a small hit

Political risks and the questions on crony capitalism in India will also be in the limelight with the Adani fallout. But the impact on Modi’s popularity are unlikely to be substantial. The Adani Group’s rebuttal against Hindenburg invoked a nationalist response, claiming that an attack on the group was an attack on India. More importantly, the lack of a strong and united opposition in India creates limited scope for such opportunities to be exploited.

The question on whether India continues to consolidate state assets and create monopolies or move towards a free market economy to foster competition is the key one for long-term investors.

Plunge in investor confidence is the key concern

The biggest threat of the dispute will be on what impact it has on the foreign investor confidence. The sentiment has turned slightly bearish on India in general, given the risks of political influence and lack of transparency. While these risks are inherent to the Indian markets and well aware to investors, the risk-reward for the Indian markets has just taken another turn for the worse.

More importantly, as we highlighted in this video, Indian markets started the year at a significant valuation premium to other Emerging Markets. The corporate governance risks in India have been highlighted once again with the Adani report, raising questions on whether the premium that India trades at to other emerging markets is justified.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.