Adani’s adversity raises the stakes for India and investors

As Indian tycoon Gautam Adani’s woes deepen and force him to drop a share sale, foreign investors and Indian regulators are abandoning any pretence that the conglomerate’s troubles are contained, and domestic markets will be spared contagion.

Foreign investors, many of them already underweight what they consider an overpriced stock market, are reducing exposure.

India’s central bank and stock market regulator have sprung into action more than week after US shortseller Hindenburg Research’s report on the Adani Group spurred a rout in its shares, saying they were looking into irregularities and local bank exposures.

Adani’s wipeout has the potential to broaden if it drives a bigger mood shift, said Sat Duhra, who manages a $1 billion Asian dividend income fund at Janus Henderson Investors.

“The Indian stock market indices are driven in large part by a small group of companies and any change in sentiment and flows will have a disproportionate impact on indices as more liquid names are sold first,” he said.

“We own less than 2 per cent in Indian equities and would need to see a serious correction before we considered adding, especially in light of the recent issues.”