Adani scandal could pull down the entire Indian stock market

The recent sell-off in the shares of Asia’s richest man, Gautam Adani, intensified at the end of the week, erasing nearly $45 billion of Adani Enterprises Ltd’s market value in less than 2 sessions as Adani tries to contain the fallout from a critical report by U.S. short seller Hindenburg Research, Bloomberg writes.

On Jan. 24, Hindenburg released a report detailing numerous allegations of corporate malfeasance after a 2-year investigation into Adani’s companies. Adani Group has said it will file a lawsuit after maligning the short-seller’s report. Hindenburg said it fully stands by its report, adding that any legal action taken against it would be baseless.

Although conglomerate Adani Group disputed Hindenburg Research’s allegations, its shares lost 9.7% on Friday, slipping below the Rs 3,276 level. Shares of its constituent Adani Green Energy Ltd (NS:ADNA) and Adani Total Gas Ltd (NS:ADAG) fell 20%, leading to a $12 billion sell-off in shares of group companies on Wednesday.

The fall in Adani shares follows a meteoric rise in recent years, with the company surpassing even as Ilon Musk’s (NASDAQ:TSLA) Tesla, taking Gautam Adani from relative obscurity to the ranks of the world’s richest men.

But concerns about the group’s finances have been a constant throughout Adani’s rise in wealth, with Credit Sights saying in August that the conglomerate was severely overleveraged due to a stretched balance sheet. But a recent Hindenburg report has brought unprecedented attention to the group’s corporate governance, and to India as a whole.

“The problems go to the heart of the Indian corporate sector, which is dominated by a number of family-controlled conglomerates,” said Gary Dugan, CEO of Global CIO Office. “They are inherently opaque, and global investors should take an interest in corporate governance issues.

Following the Adani empire, Indian stocks and stocks of any large company will be at risk of declining earnings and the entire Indian stock market could be at risk of falling further, with Adani as the catalyst.

Following this, India’s benchmark index S&P BSE Sensex lost over 1% on Friday, its worst performance in Asia.

 


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