Gautam Adani’s Crisis Deepens With Modi-Backed Probe and Stock Downgrades

Adani Group's market value has more than halved since Hindenburg research accused it of widespread fraud in late January.

Congress Protest Demanding Investigation Into Adani Group
Members of Congress party burned an effigy with masks of Modi and Adani during protests on Feb. 6, 2023 in Kolkata, India. Samir Jana/Hindustan Times via Getty Images

The crisis of Indian industrial tycoon Gautam Adani continued this week with its fallout spilling over from Adani’s business empire to India’s political sphere. Shareholders watched their Adani stocks continue to whipsaw with no end in sight.

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Adani is the founder and majority owner of Adani Group, a conglomerate whose market value grew nearly eightfold in the last two years to $217 billion—until Jan. 24, when Hindenburg Research, a New York-based short selling firm, published a report accusing Adani Group of decades of accounting fraud and stock manipulation. A selloff of the group’s shares quickly ensued and, in just two weeks, wiped out half of its market value and more than $50 billion in Adani’s personal wealth. His family owns 65 percent of the conglomerate.

Adani Group’s rapid decline has also resulted in severe losses for its outside shareholders, including the Life Insurance Corporation of India, a state-owned insurance and investment company, and U.S. mutual funds BlackRock and Vanguard.

Adani has denied all wrongdoings alleged in the Hindenburg report and issued a 400-page rebuttal. But so far it has done little to quell investor panic, and the crisis has only deepened in recent days.

Adani’s crisis threatens Narendra Modi’s popularity

On Feb. 6, hundreds of demonstrators from India’s Congress Party, the country’s main opposition party, took to the streets of India’s capital New Delhi and other cities, demanding Prime Minister Narendra Modi’s government launch an investigation into fraud allegations brought against Adani.

Adani’s fortune has swelled by more than 2,000 percent since Modi took office in 2014. Adani critics say he has benefited from his relationship with Modi. Until the protests, Modi had been silent about the Adani scandal. On Feb. 8, he addressed the growing criticism and said during a speech in parliament Indians will not swallow “lies and abuse” against him. Modi didn’t openly mention Adani in his speech, however.

Later in the week, India’s market regulator, the Securities and Exchange Board of India (SEBI), launched a probe into Adani Group’s recently aborted $2.5 billion share sale, Reuters reported today (Feb. 10). The watchdog is looking into potential violation of Indian securities laws by Adani Group and some of the investors involved in the share sale.

Modi’s office has been briefed on the matter by India’s federal corporate affairs ministry, which regulates Indian businesses, according to Reuters.

A stock roller coaster

Amid an investor exodus and a reputation crisis, the shares of some Adani-owned companies unexpectedly jumped on Feb. 6 after they posted strong quarterly profits and promised to make early repayment of a $1.1 billion loan, suggesting the business group’s cash position is still sound.

There are seven publicly traded companies under the Adani Group umbrella. The share price of Adani Enterprises, the largest of the seven Adani entities, jumped nearly 15 percent on Mumbai exchange on Feb. 7. The shares of Adani Ports and Special Economic Zone, a port operator, and Adani Wilmer, a food producer, also rose about 10 percent that day. However, the other four Adani companies fell on Feb. 7.

Today (Feb. 10), all Adani stocks plunged again after Moody’s downgraded a few Adani Group companies. Moody’s lowered its ratings outlook to negative from stable for Adani Green Energy, Adani Group’s renewable energy subsidiary, and two entities under Adani Transmission, one of the largest power transmission company in India.

“These rating actions follow the significant and rapid decline in the market equity values of the Adani Group companies” following the release of the Hindenburg report, Moody’s said in a statement today. 

Also today, Morgan Stanley Capital International (MSCI), an investment research firm that provides stock indexes, said it will cut the weightings of four Adani companies, including the flagship Adani Enterprises, in its emerging markets indexes after reassessing the number of shares that are freely traded. The changes will take effect on March 1.

Shares of Adani Enterprises closed 4 percent down today in Mumbai after dropping 11 percent on Feb. 9. The stock is down 54 percent since Jan. 24.

Gautam Adani’s Crisis Deepens With Modi-Backed Probe and Stock Downgrades