What happened?
The US has charged Indian billionaire Gautam Adani with fraud, accusing him of orchestrating a bribery scheme and concealing it to raise money in the United States. In the indictment, US prosecutors alleged Adani, and other senior executives, had agreed to pay over $250 million in bribes to Indian government officials to win lucrative solar energy supply contracts that were projected to generate more than $2 billion in profits after tax over an approximately 20-year period. They were also accused of allegedly conspiring to conceal the bribery scheme from US investors and international financial institutions to obtain financing, including to fund those contracts. These new charges follow last year’s well researched short-seller report from US-based Hindenburg Research, which had accused Adani of stock manipulation and accounting fraud over decades.
Our views on Adani
As investors with a long-term quality focus, we would always consider the transparency, related party transactions and accounting practices of such an opaque, complex, highly leveraged, and politically connected group. We have never held any of the Adani entities in our portfolios, even as their shares enjoyed a meteoric rise in 2022. It is difficult to say what might happen next. Adani shares have collectively sold off since the charges were announced, which remains a good news story for our strategies. The moves, as seen below, aren’t as large as they were in 2023, mainly because we haven’t seen the stratospheric share prices rallies that preceded the short seller report this time around and the group has also deleveraged a fair bit since the last time, so the balance sheets are less vulnerable.
| Total Returns between 19 Nov 2024 and 22 Nov 2024 |
Total Returns between 24 Jan 2023 and 28 Feb 2023 (post Hindenburg Report) |
|
|---|---|---|
| Adani Power | -12.02% | -46.73% |
| Adani Energy Solutions | -27.00% | -76.72% |
| Adani Enterprises | -17.48% | -60.38% |
| Adani Total Gas | -7.75% | -82.56% |
| Adani Ports & Special Economic Zone | -9.18% | -22.17% |
| Adani Green Energy | -24.94% | -74.68% |
| MSCI India | 1.27% | -7.04% |
Source: Bloomberg, as of 22 Nov 2024
We have seen in the past when public news of 3 FPI accounts owning Adani Group shares were frozen in 2021, it did not stop the share prices from flying in the subsequent year. The group has the ability to manage share prices, and we are aware that Gautam Adani has strong political ties to Prime Minister Narendra Modi. Nonetheless, we will monitor how the situation develops from here.
Is there systemic risk to the market?
Unlikely, as the majority of Adani’s funding comes from offshore financing, and the Group has taken steps to deleverage over the last 18 months. Several of the group’s companies also generate healthy cash flows. However, the charges against Adani could affect foreign investor sentiment towards India at a time when we are seeing some pullback in the market. Various factors are driving that, including a temporary slowdown in the pace of earnings growth. We are closely watching that and would expect that pace to recover in 2025. Moreover, domestic investors have continued to back the Indian market, with net flows into the market for 14 consecutive months.
Portfolio impact
We do not have any direct exposure to Adani stocks, including subsidiaries such as Ambuja Cements. Indian financial institutions hold about 36% of Adani Group’s total gross debt (FIs/NBFCs 18%; state-owned banks 15%, private sector banks 4%) while the rest is held by global banks (26%), Indian capital market (5%), global capital market (29%) and others (4%). The Indian three private sector banks that we hold across our country and regional funds have limited exposure as seen below. Given the minimal exposure, at this point we are not worried about any material impact on our portfolio, but we will continue to monitor the developments as they progress.
| Banks | Total exposure (Rs. Billions) |
% of bank's net worth |
|---|---|---|
| ICICI Bank | 32 | 1.20% |
| HDFC Bank | 21 | 0.50% |
| Axis Bank | 17 | 1% |
Source: Credit rating reports of select Adani Group entities, IIFL Research, November 2024
Important information
Risk factors you should consider prior to investing:
- The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Investment in abrdn New India Investment Trust ("the Company") may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends
Other important information:
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.
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