India File: What the Adani crisis means for India

Adani Total Gas

26/11/2024 04:25

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26 Nov - By Ira Dugal, Editor Financial News, with global
Reuters staff.
    
Greetings from Mumbai!
    This week on the India File, we focus on allegations against
Adani group founder Gautam Adani. Does this latest crisis create
new risks for India's economy? I'd be interested in your views.
Please write to me at ira.dugal@thomsonreuters.com.
    Meanwhile, the rupee has been tumbling from one record low
to the next, prompting more aggressive measures to keep the
currency stable. More on that in "Market Matters".
    And the ruling Bharatiya Janata Party wins a landslide
victory in provisional elections in the pivotal state of
Maharashtra, strengthening its political position.
    
THIS WEEK IN ASIA
** 'No one will win a trade war,' China says after Trump tariff
threat    
** Japan plans $90 billion spending in new stimulus package,
document shows 
** IMF approves third review of Sri Lanka's $2.9 billion bailout
** Australia dumps plan for fines for social media giants
enabling misinformation    
                    
INDIA AND THE ADANI CRISIS
    Billionaire Gautam Adani and the sprawling Adani group are
facing another crisis less than two years after they were
targeted by U.S. short seller Hindenburg Research, which knocked
$150 billion in market value from the group's listed companies.
    The allegations this time came from U.S. prosecutors, who
indicted Gautam Adani for his alleged role in a $265 million
bribery scheme that aimed to secure solar power approvals from
Indian officials. The group has denied any wrongdoing.
    Read here to know more about the allegations, the defendants
in the case and suspected disclosure lapses on the part of the
Adani group.
    With Gautam Adani himself at the centre of the latest
allegations, the entire group faces "key man" concerns. Adani's
dominance in the domestic infrastructure sector, moreover, has
put India's government and lenders in a tough spot, Reuters
BreakingViews columnists wrote.
    A top risk for India is what may happen to the group's
funding. Global bankers have turned cautious since the
indictment and S&P said funding access could be impaired and
borrowing costs pushed higher.
    French oil major TotalEnergies, with shareholdings in Adani
Green and Adani Total Gas, has paused fresh funding to the
group.
    While Indian banks' exposure to the group is currently at
comfortable levels, they too are limited by regulations that cap
exposure to any single corporate group.
    Hasnain Malik, emerging market equity strategist at research
firm Tellimer Insights, sees other potential problems as well.
        "The case may pose a risk to foreign investor appetite
for Indian assets," he said, noting there had already been a
sharp drop in foreign flows into Indian equities this year.
What's more, he said, the indictment could give leverage to the
incoming Trump administration in trade negotiations.

TOO BIG TO IGNORE?
    As Gautam Adani led the Adani group's phenomenal rise, the
first-generation entrepreneur also led it into a number of
controversies, including opposition from climate activists to
its Carmichael coal mine in Australia and a political outcry
over the Dharavi slum redevelopment project in Mumbai.
    For years, a number of Indian economists have also warned
about the concentration of economic power in the hands of a few
industrial houses.
    Back in 2021, India's former chief economic adviser Arvind
Subramaniam and former IMF representative to India Josh Felman
called out the Narendra Modi government's strategy of creating
national champions, including the Adani and Ambani groups, which
could crowd out potential growth for other companies. 
    But that did not slow the champions' advance.
        The Adani group has cornered large market shares in key
infrastructure segments - from ports and airports, where it
controls close to a quarter of India's capacity, to solar
manufacturing, where it holds a 53% share of India's installed
photovoltaic cell capacity.
    It plans to invest $90 billion more in infrastructure
expansion over the next decade, Jefferies said in a report
earlier this year. That would make it one of the largest
private-sector players in the sector, which has taken off as the
world's fifth-biggest economy rushes to catch up with China and
others. The private sector has contributed about one-fifth of
India's infrastructure spending in recent years, while overall
infrastructure investment, including government money, was
estimated by CRISIL Research to reach $1.8 trillion for
2024-2030.
    
QUOTE OF THE WEEK
        "BJP's resounding win in the Maharashtra elections
boosts political stability, a market sentiment positive."
  
    Jefferies analysts on the State of Maharashtra's election
results.
    Prime Minister Narendra Modi's Bharatiya Janata Party won by
a landslide in provisional elections in India's richest state.
    Since the BJP lost its majority in parliamentary elections
in June, it has focused on key state elections, winning both the
farm-heavy northern state of Haryana last month and now
Maharashtra, home to the financial capital Mumbai.
    
MARKET MATTERS
    The Indian rupee has tumbled from one record low to the next
over the past month, pressured by a strengthening dollar and
persistent outflows of foreign investors' money.
    Still, the rupee has performed better than its Asian peers
as the Reserve Bank of India has stepped in to sell dollars and
slow the decline. This in turn has eroded its forex reserves,
which saw the sharpest decline on record in the week ended Nov.
15.
    The RBI has taken its intervention to a new level, however,
as it confronted persistent outflows both before and after the
Adani indictment. In a rare move, the RBI also asked banks to
cut their long dollar-rupee positions.

 ($1 = 84.4260 Indian rupees)

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India's forex reserves post biggest weekly fall on record    https://reut.rs/493wykT
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 (By Ira Dugal; Editing by Edmund Klamann)