Indian Stock Investors Optimistic Despite Adani Group Woes
India’s local money managers are bullish about the country’s stock market in the year ahead, and overseas funds are trickling back into the $3.1 trillion equity market. Signs are emerging that investors are moving beyond the troubles of Adani Group. A key share benchmark is climbing back towards an all-time high after a second-month retreat in January. The downturn was prompted by a scathing report on Gautam Adani’s empire by US short seller Hindenburg Research, which shook sentiment across the market.
Despite this, fund managers believe that India’s main equity indexes will end the year higher than current levels, as strong domestic demand boosts corporate earnings. Rakhi Prasad, an investment manager at Alder Capital in Mumbai, believes that the Adani issue is separate from the Indian market. She points out that governance standards of many Indian companies are on par with global ones, and that similar issues can be found in other countries.
The slump in the ten Adani companies has wiped off more than $130 billion from their combined market value. However, the government is targeting the fastest expansion among the world’s major economies, and this stumbling block may end up being a brief one. Some believe that the scrutiny the nation’s corporate governance scene has faced since the Hindenburg report may end up being a long-term positive rather than its own “Lehman moment.”
Mark Mobius, co-founder of Mobius Capital Partners, said he has become more bullish and is looking to buy technology, infrastructure and healthcare stocks. He plans to put more money into India as he believes the long-term future of the market is great. He views the investor retreat as an Adani problem, saying India has now attracted international attention, and investors will realize that the Adani case is an aberration.
Hindenburg published a report on January 24 accusing the Adani Group of share manipulation and fraud, which the conglomerate has repeatedly denied.
Sixteen of 22 local fund managers Bloomberg News asked in an informal survey this month said they were still bullish on Indian stocks despite the Adani saga. Only two were bearish, while four others were neutral. Seventeen predicted the S&P BSE Sensex Index and NSE Nifty 50 would end the year higher than current levels, while the majority also said the Adani fallout wouldn’t hurt Prime Minister Narendra Modi’s pro-growth political agenda.
Overseas investors too seem less concerned than in the initial days of the Adani rout. Foreign funds boosted holdings of Indian stocks for six straight sessions through Thursday, the longest streak since November, according to the latest exchange data compiled by Bloomberg.
While the Adani group has dominated news headlines in recent weeks, the conglomerate’s many businesses that span areas from ports-to-power only comprise a sliver of the Indian economy. The group’s combined capital expenditure over the next two years will be at best about $12 billion even assuming it manages to maintain last fiscal year’s levels despite its wide-ranging troubles, according to calculations from Bloomberg Intelligence. This represents only about 0.3% of the potential gross domestic product of India’s $3.47 trillion economy. An analysis of governance, liquidity and leverage conditions at India’s biggest business groups including Tata, Reliance and Infosys also indicates that Adani is an outlier, and isn’t representative of India Inc. as a whole, according to a report by Bloomberg Economics analysts Abhishek Gupta and Scott Johnson
Fund Survey: Indian Stocks Remain Attractive Despite Adani Saga
Despite the recent Adani saga, Indian stocks remain attractive to local and overseas investors alike, according to an informal survey conducted by Bloomberg News. Of the 22 local fund managers surveyed, 16 said they were bullish on Indian stocks, while only two were bearish and four were neutral. Additionally, 17 predicted that the S&P BSE Sensex Index and NSE Nifty 50 would end the year higher than current levels. Most of the fund managers also believed that the Adani fallout wouldn’t harm Prime Minister Narendra Modi’s pro-growth political agenda.
Foreign investors also seem less concerned about the Adani rout than they were initially. Foreign funds boosted holdings of Indian stocks for six straight sessions through Thursday, marking the longest streak since November, according to the latest exchange data compiled by Bloomberg.
Despite Adani Group’s dominant news headlines, the conglomerate’s businesses in ports-to-power only comprise a small percentage of the Indian economy. Bloomberg Intelligence estimates that the group’s combined capital expenditure over the next two years will be around $12 billion, representing only about 0.3% of India’s potential gross domestic product.
Moreover, an analysis of governance, liquidity, and leverage conditions at India’s biggest business groups including Tata, Reliance, and Infosys, shows that Adani is an outlier and isn’t representative of India Inc. as a whole. The report by Bloomberg Economics analysts Abhishek Gupta and Scott Johnson further supports the belief that Adani’s recent troubles will not have a significant impact on Indian stocks.
In summary, despite the Adani saga, Indian stocks remain attractive to both local and foreign investors. The Adani Group’s businesses only represent a small fraction of India’s economy, and an analysis of governance and other factors suggests that Adani’s troubles are an outlier rather than a systemic issue.
Risk of Valuation:
Not all investors are optimistic about Indian equities due to concerns surrounding Adani’s corporate governance, expensive valuations, and the shift of global funds towards China after its reopening. Although the Sensex, which does not include any Adani stocks, is close to its record high, it is trading at an 89% premium on earnings-based valuations compared to the MSCI Emerging Markets Index. Similarly, the Nifty 50 gauge, which houses two Adani group companies, is nearing its peak.
According to Nitin Chanduka, a strategist at Bloomberg Intelligence in Singapore, the near-term risk for Indian equities is more related to valuation as interest rates increase rather than Adani risks. However, he also stated that Adani’s issues are unlikely to result in a widespread capitulation.
A Minor Issue:
According to data compiled by Bloomberg Intelligence, analysts predict that earnings per share for companies in the MSCI India Index will increase by 14.1% this year, which is better than most major markets. This growth in corporate earnings is expected to support India’s long-term valuations.
Institutional money managers remain optimistic, as do retail investors who have become a significant force in the Indian market with around 110 million accounts, up from 30 million in the past two years.
Rushabh Sheth, co-chief investment officer at Karma Capital, stated that Adani’s issues are not a system-wide concern since India’s markets have matured significantly over time. He believes that in a few months, it will just be a minor issue or a “wrinkle” in the market.
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