Adani effect: On Businesses, Markets and India

By: Robin Banerjeee

My father often used to tell me – the pen is mightier than the sword. That is exactly what has happened recently. A report written by the Hindenburg Research, a New York-based short seller, has exactly done that – wiping out
millions from investors’ wealth. The report was a bombshell accusing the Indian billionaire Gautam Adani’s businesses of engaging in ‘brazen stock manipulation and accounting fraud’. The Adani Group has strenuously denied the allegations.

The result – within a few days of the report, the tycoon’s listed companies lost more than $110 Bln (almost Rs 10 lakh crore) of their market value. A whopping 50 percent fall!

Market uncertainties in several areas commenced. Perhaps the most popular term being spoken currently amongst the business community – the Adani- aftereffect. Lots have since been written, spoken and argued.

The moot point is – what likely are the fallouts from this episode?

Let me try to paint the probable picture that could emanate.

Impact on business at large

On Adani’s own businesses: There is a great likelihood of its businesses getting hit at least in the short term. The group needs huge funding. And most of it necessarily must come from abroad. Of all the capex being undertaken in India, Adani accounts for 3 percent of it, by value; and about 10 percent of all the newer projects, announced during 2021-22. And these numbers are not insignificant.

With governance and debt concerns being raised, unless the doubt-clouds gets cleared, smooth flow of funds could get affected, especially from international sources. More importantly the growth plans could suffer.

Let me cite an example. The group has announced that it will spend about $70 Bln on green and hydrogen related projects. This could get stalled.

Another issue – the current turmoil will take away lot of management bandwidth. This is not good for any business.

On business in general: The Adani’s ten listed entities have a turnover of around Rs 100K Crore. Being in the project and construction related businesses, any adverse sentiment will have a domino effect on its suppliers, contractors and workers.

Impact on stock markets

Inspite of the mayhem in the Adani group stocks, the broader market index has not got affected, since the 24 th January dated Hindenburg report.

The India story is yet intact. One Group’s woes, howsoever severe the allegations could be (till proven of course), is unlikely to change much in the market investment sentiments. And that is what is happening.

Adani group has real assets, which are generating cash. They have ports, airports, power plants, mines and cement. The group had over Rs 3 lakh crore of cash-generating assets last year. That is not a small number.

However, whether they would continue to generate adequate cash to repay the debt liabilities, is a big question.

It may be added here that some noted valuation experts have given fair value of the flagship Adani Enterprise’s equity shares at sub-Rs 1000 levels, when the follow-on public offer was priced at around Rs 3200. These sort of calculations does weaken market sentiments.

The Adani group is involved in infrastructure related activities with major focus on ports. India needs huge capex to upgrade its infrastructure. The Central Government this year in its budget has allocated over Rs 10 lakh crore on infra related activities, which is 60 percent higher over the previous year. Several outfits in the private sector will need to help make this happen, together with the public sector. The group is well placed to do so. In fact, their superior project execution abilities are well known.

Given this background, the Adani group share prices are unlikely to swing very negatively in the medium term, unless some major corporate governance faux pas gets identified through the various investigations which are going on. However, the market price of Adani listed companies, are unlikely to reach in the near future, the stratospheric levels of the recent past.

Impact on India

While the global growth engines were induced in the last two decades primarily by China, the next decade will be driven by India. Hence, willy-nilly, India will form a significant portion of investor interest.

There is no doubt that the adverse research report on Adani Group is not good news. In fact, a few recent developments will cast more shadows unless cleared through investigations by the regulators or the company itself through credible third-party audit reports.

Let me cite a few issues which could be important for India-business:

Corporate governance: The investing and lending community lovescompanies, which are honest and dependable. Clouds of aspersions on ethical matters reflected in the Hindenburg report may cast some shadows of doubts on other Indian companies.

High debts: Borrowing levels which are difficult to service are not liked by the market. Adani group debts have gone up from Rs 1 lakh crore to Rs 2 lakh crore in the last 3 years. The group’s operating margins are low – around 4 to 5 percent (against industry norm of 8 to 10 percent). Driven by Adani-effect, debt oriented Indian companies could be looked at with more diffidence.

Bank liabilities: Doubts on the broader ability towards repayment of Indian bank debts, have cast some shadow. About Rs 70,000 Crore of Adani group debt is exposed to the Indian banks. This is about 0.5 percent of the total Indian banking-system debts. Any bad news ofdefaults from the Adani group, if any, should not have significant implication on the financial markets.

Family run businesses: Most Indian businesses are family driven. Whether we like it or not, the Adani episode would caste some fuzziness on family driven enterprises. Hence, all Indian family-owned companies will need to up the ante on good governance, and it’s published accounting numbers.

Last few words

Businesses involve taking risks. A few get more aggressive, while others could remain mellowed. Risky aggression brings enhanced uncertainties and some corresponding scrutiny. And when any business group becomes big, that too fast and furious, many eyes get cast on its veracity and tenuousness. The Adani episode is no different.


Grey clouds with fury of rain and wind, bring weather uncertainties, while it lasts. The Adani related clouds currently are rather grey, swaying things from one day to another. Please remember - public memory is short; and grey clouds do not last forever. The markets and the India situation should become stable sooner than later, barring other unforeseen happenings.

About the Author: Robin Banerjee is Managing Director at Polyvinyl Chloride film maker Caprihans India. Prior to the present tole, he served as the MD in Arcelor Mittal Germany, ED at Essar Steel and Thomas Cook, and Group CFO of Suzlon. He has authored three non-fiction books 'Who Cheats and How', 'Who Blunders and How' and 'Corporate Frauds: Business Crimes Now Bigger, Broader and Bolder'.

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