Bloomberg published a news report on last Friday (3 Feb 2023) saying that the recent Adani stock rout is raising bigger and darker questions about India’s credibility as a destination for international investors.
It all started when Hindenburg Research published a damning report two weeks ago alleging that Gautam Adani uses offshore shell companies for money laundering and manipulating the stock prices of his companies in Adani Group. Hindenburg has characterized the group’s meteoric rise as “the largest con in corporate history.”
While many of the claims have circulated among the Indian investing class for years, Hiddenburg is the first financial institution on Wall Street to seriously question the practices of Adani Group publicly. The fallout now threatens to undermine investor confidence in India more broadly, and in the nation’s regulatory framework — whether its claims ultimately prove to be true or not, Bloomberg said.
“Things are moving very fast in the market, with a potentially major reassessment of the risks of investing in Indian equities by international investors,” said Singapore-based Gary Dugan, chief executive officer of Global CIO Office, an asset manager and financial advisory firm. “That reassessment includes governance, corporate transparency, nepotism and indebtedness.”
The turmoil has also hit banks that have given loans to the companies in Adani Group. The State Bank of India has tumbled 11% since the Hindenburg report came out.
Foreign institutional investors pulled a net $2 billion out of India’s stock market from the country from 27 January through 31 January. It’s not known if Adani has taken loans from DBS India.
“It’s apparent even to casual observers that the declining fortunes of the Adani empire has the potential to shake the fundamentals of the Indian economy in a way few other corporate crises can,” Bloomberg said.
“There is no doubt that Adani’s star is tethered closely to Modi’s own political trajectory — the conflation of the Adani Group’s interests and India’s national interest is striking,” said Milan Vaishnav, director of the South Asia Program at the Carnegie Endowment for International Peace.
Adani is closely linked to Indian Prime Minister Narendra Damodardas Modi.
His ascent coincided with the rise of Modi, who was elected Gujarat’s chief minister in 2001. Adani even founded a biannual Vibrant Gujarat forum that helped burnish Modi’s image as a dynamic development-focused leader who got things done. In a highlight of their closeness, Modi attended a party Adani threw for the wedding of his son Karan in 2013, a year before Modi was elected as India’s PM.
Singapore #1 investor in India
Meanwhile, thanks to the India–Singapore Comprehensive Economic Cooperation Agreement (CECA), Singapore has become the top foreign investing country in India for the financial year 2021-22.
India received 27.01% of its overall FDI inflows from Singapore, followed by 17.94% from the US. Mauritius ranked third on the list with 15.98%, followed by The Netherlands (7.86%) and Switzerland (7.31%), according to India’s Ministry of Commerce & Industry.
“Singapore is the leading source of Foreign Direct Investment into India. Over the last 20 years the total investment into India from Singapore is almost 136.653 billion and accounts for nearly 23 percent of the total FDI inflows,” declared the High Commission of India to Singapore.
“Our economic and commercial ties have expanded significantly in recent years, particularly after the conclusion of the Comprehensive Economic Cooperation Agreement (CECA) in 2005,” it added.
On Singapore’s MTI website, it also commented, “CECA gives preferential access for Singapore service providers and investors in sectors of interest (of India): including engineering, banking, telecommunications and real estate development. Such access gives them more opportunities to expand beyond Singapore.”
Last year, Temasek’s MD, Vishesh Shrivastav, told Indian media that Temasek’s total portfolio in India has nearly doubled over the last five years. Temasek’s India exposure hits US$16 billion last financial year. It grew to US$14 billion in FY21 from US$9 billion in FY20. The figure stood at US$11 billion in FY19, US$10 billion in FY18 and US$9 billion in FY17.
In any case, if India’s credibility as a destination for international investors falls, Singapore’s investment in India will surely suffer too.