Adani exploited weakness in Indian institutions

The Adani Group is not playing a “con game” but has exploited the “weakest link” in Indian institutions to its advantage, according to NYU “Dean of Valuation” Aswath Damodaran.

A finance professor at the Stern business school says the fundamentals “never play” for the Indian market.

“Nobody wants to talk about the fundamentals, nobody wants to be bearish about the company and say that the stock looks overpriced. It’s not healthy for the market,” said Damodaran, telling CNBC’s “Streets Sign Asia” on Friday.

“That’s why I said that Adani is not about the company… it’s about the weakest link in the Indian story. And from my perspective, it’s not a con game. It’s just a company playing on its weaknesses.”

Damodaran’s remarks are in addition to his latest blog post, where he shared his views on the Adani affair.

On January 24, the short-selling company based in the US Hindenburg published a report accusing Indian billionaire Gautam Adani of pulling “the biggest con in the history of the company,” and alleged that the conglomerate had been involved in stock manipulation and fraud.

The Adani Group has strongly denied the allegations, calling it a “calculated attack on India” and its institutions.

Although the Adani conglomerate includes ports, airports, mining, cement, power companies, Damodaran said he believes the Group’s core business is in infrastructure.

“What I see is an infrastructure company … if we only value the company as an infrastructure company, then the numbers do not make sense from a price perspective. ?” he pointed out.

Even without the Hindenburg report, the professor noted that he was “hard pressed” to explain why the company’s stock was so overpriced.

Adani Group’s total gross debt reached 2.2 trillion Indian rupees ($26.8 billion) at the end of March 2022, according to calculations by Refinitiv Eikon.

“I am willing to believe that the Adani Group has played fast and loose with the exchange listing rules, that it has used intra-party transactions to make itself look more credit-worthy than it really is,” Damodaran said in a blog post.

He added: “Even if they do not directly manipulate the stock price, they use the increase in market capitalization to their advantage, especially when raising new capital.”

Damodaran also said that the Adani affair provides an opportunity for Indian institutions to learn lessons and try to fix the problem.

“As for the participating institutions, including banks, regulatory authorities and [Life Insurance Corporation]I have learned not to associate venality or corruption that can be caused by inertia and indifference,” the economist said in his blog.

“The wider version of the Adani story is that a family group has exploited the weakest seams and links in the Indian story, to their advantage,” he said in the blog, adding that “there are lessons for the nation as a whole, as it looks to what it wants to grow.” decade.”

The fallout from the Adani scandal has raised concerns about the group’s exposure to Indian banks.

State Bank of India, the country’s largest lender, told CNBC that the loan it gave to the Adani group was secured and there was no immediate risk.

“The total exposure to this entity is only about 0.88% of the bank’s total loan book,” Chairman Dinesh Kumar Khara told CNBC’s Tanvir Gill in an interview.

“There is no reason for anyone to have any concerns or doubts related to our inability.”

Khara added that the Adani Group’s cash flow situation appears to be quite stable and SBI has not been approached for more funding by the conglomerate.

Over the weekend, the Securities and Exchange Board of India tried to defend the Indian market, saying the country’s two main indices – the Bombay Stock Exchange and the National Stock Exchange of India – have shown “continued stability” and “continue to operate in a transparent, fair and efficient manner.” “

— CNBC’s Jihye Lee contributed to this report.