In partnership with

Good morning. In today's edition–examining the cracks appearing in Gautam Adani's empire amidst mounting fraud allegations; why there is an urgent need for sweeping reforms in India's power sector; the rebound in the office real estate sector; and the potential impact of climate change on India's GDP.

THE TAKE

Adani's Teflon Coating Wearing Thin?

The responses to bribery allegations against the Adani Group that exploded across newswires early Thursday morning came from several, mostly predictable, quarters. 

But this one took the proverbial cake.

The India research head of investment and wealth manager, Sanford Bernstein, said the market reaction—the fall in Adani’s stocks by around 20%—was short-term.

“These incidents were not specific to India. Such incidents tend to be short-term in nature, given the nature of the infrastructure business,” the research head told CNBC TV18.

He dug in further, saying they were not reading too much into the Adani Group news and that the news was unlikely to have lasting consequences for the broader market. Instead, he said, they were focused on the broader solar sector and said solar energy was a domestic and export opportunity.

If I were to decode what he said, it would go as follows.

First, that allegations of corruption should be treated as routine because that is the nature of the infrastructure business in India. In effect, brokerages like his were building corruption into their sector analysis and modelling– my words not his.

Second, because such allegations or brouhahas are routine, it will be back to business as normal in a few days or so.

The frightening part is that he may be right.

Everyone assumes that large contracts are not landed without some form of give and take. Specifically, no one really thinks you are corrupt because you got a big power distribution contract at a price that the electricity distribution company, including the one in question, may not otherwise have bought.

All this is priced into the stock price eventually. Since this is a discussion on business and market price and not morals, let us focus on the former. Which is that Adani Group stock prices tanked more than 20%–no mean feat even in a generally weak and sliding market.

But before we go deeper into that, let’s pause to take stock of the allegations.

US Government prosecutors have charged Gautam Adani with helping drive a US $250 million bribery scheme to Indian government officials to win solar energy contracts and concealed the plan as they sought to raise money from US investors, Bloomberg reported.

More specifically, the Securities & Exchange Commission (SEC), which controls securities markets in the USA, has said that during Adani Green’s September 2021 note offering, which raised US $750 million, the offering materials misrepresented the company’s anti-corruption efforts, despite ongoing bribery activities.

The five-count indictment also accuses Gautam’s nephew, Sagar R. Adani, and Vneet S. Jain, both executives at an Indian renewable-energy company, of breaking federal laws.

Adani has denied the US allegations and said it would seek legal recourse, even as it scrapped a $600 million bond sale. 

There have been other collateral damages, including to the holdings of several mutual funds, which took what seemed like contrarian bets on the Adani Group.

Which brings us to the price.

While the debates are already turning shrill, with considerable political grandstanding, the fact remains that the markets, where the ultimate power lies, have voted down the Adani stock prices again. 

This is the third, perhaps major, shock to the company’s reputation and its stock prices, starting in January 2023 when New York-based short-seller Hindenburg Research claimed in a report that Adani was involved in stock manipulation, accounting fraud, and money laundering. The report also alleged that the Adani Group was using offshore shell companies to inflate its stock prices and hide its true ownership structure.

A long investigation by the Securities & Exchange Board of India (SEBI) has gone pretty much nowhere, and allegations that the SEBI chairperson, Madhabi Puri Buch, had prior links to the Adani Group and may have influenced SEBI's investigation have also not really touched anyone. These allegations, also made by Hindenburg in a follow-up report in August 2024, claimed that Madhabi Puri Buch's husband had hidden stakes in offshore funds linked to the Adani Group.

It is highly unlikely that any other company or business group could have survived such scrutiny. 

But the markets don’t care. In each instance, Adani Group stock prices have been hammered to the floor.

Kotak Alternate Asset Managers have said they have advised exercising caution with Adani Group stocks, following the recent correction.

Serious bribery allegations have been levelled by the US Prosecutors directly against the Chairman and his nephew. Also, this development raises valuation concerns, particularly for PSU banks that have extended credit to the group.

And it's not just equity.

Moody’s Ratings said that the indictment of the Adani Group's chairman and other senior officials on bribery charges is credit negative for the group’s companies

“Our main focus when assessing the Adani Group is on the ability of the group’s companies to access capital to meet their liquidity requirements and on its governance practices,” Moody’s Ratings said in a statement

Given Adani’s past record of managing its problems within India, it will perhaps emerge unscathed from this round of battering too.

But the markets clearly know and neither forgive nor forget.

And that is something the Adani Group cannot easily negotiate or navigate its way out of easily. This is the third time unlucky for the group.

MESSAGE FROM OUR SPONSOR

Your BILL demo + 🎁

• Control spending with customizable budget controls.

• Get real-time visibility into your finances.

• Take a demo and get a gift.¹

Request a demo

¹ Terms and Conditions apply. See offer page for more details.
BILL Divvy Card is issued by Cross River Bank, Member FDIC, and is not a deposit product.

JANUS VIEW

Beyond Adani: Why India’s Power Sector Needs To Change

Falling markets dominated the concluding week. The Maharashtra and Jharkhand elections got over, allowing decision-makers to concentrate on decision-making, instead of on campaigning. Manipur gave up its semblance of normalcy, with a member of the BJP-led ruling coalition leaving it, in the wake of sporadic violence–without stripping it of a majority, however.

The US securities regulator, the Securities and Exchange Commission indicted the Adanis under the Foreign Corruption Prevention Act, causing Adani shares to tank in India and the group to abandon a proposed bond issuance worth $600 million. Adani’s discomfiture has given Congress leader Rahul Gandhi a chance, once again, to charge the government with collusion with the businessman, and to seek the businessman’s arrest.

Adani’s indictment has been for ‘plans to bribe Indian officials’, in relation to a large renewable power contract. Whether these charges are proven true or false, there is little dispute that India’s power sector needs to change at many levels.

CO:RELATION

Real Estate Commerce

A lot is going for the commercial real estate market. Offices are the most in demand. Awfis, the newly listed co-working space solutions company, shares jumped over 60% since its debut. The listed Real Estate Investment Trusts or ReITs like Embassy Office, Mindspace, and Brookfield have all outperformed the Nifty 50 in 2024. The management of Awfis sounded the most confident while speaking about the demand for office space. The word 'demand' appeared 26 times in the latest conference call transcript with analysts after the quarterly results. 

According to CBRE, a global real estate research firm, India's office market exceeded expectations in 2024, registering the highest January to September leasing activity on record. The office space demand is estimated at 53.8 million square feet in just nine months. The highest demand was a year before the COVID-19 pandemic in 2019 at 66.6 million square feet. The year 2024 may top that record for the calendar year.

CORE NUMBER

$400 billion

This alarming figure represents the value of assets in India vulnerable to climate change risks. A new report reveals that a staggering $575 billion worth of transport infrastructure assets in South Asia are at risk, with India accounting for $400 billion of that total. This poses a significant threat to the region's GDP, as the transport sector contributes 4-8%. The report emphasizes the urgent need for stability measures, particularly in India, to prevent economic losses and protect critical infrastructure. With climate events escalating in South Asia, the cost of inaction is immense, potentially derailing decades of development progress.

FROM THE PERIPHERY

—💰 Adani Enterprises shares, which plunged 20% Thursday after Gautam Adani and others were charged in a U.S. multibillion-dollar fraud case, remained mutual fund favourites in October, The Economic Times reported. Mutual funds added 46 lakh shares, raising their holdings to 2.96 crore, per Nuvama Research. Quant Mutual Fund led buys, adding 66.61 lakh shares, while Invesco sold 7.57 lakh shares. Meanwhile, Tata Mutual Fund offloaded 19.99 lakh Adani Power shares, and Nippon exited ACC entirely. 

—🚨 Cybersecurity threats are hitting companies hard, with nearly one-third of firms reporting data breaches costing over $1 million in the last three years, according to a PwC report. Alarmingly, 8% faced damages exceeding $20 million. Over 40% of security leaders and CFOs have dealt with breaches topping $500,000 since 2021, The Business Standard reported. Amid rising costs, 93% of firms plan to boost cybersecurity budgets next year, with 20% targeting a 15% increase. Data protection tops the agenda, with 42% prioritising post-breach remediation. Generative AI (GenAI) complicates matters, expanding attack surfaces while 87% of firms increase GenAI investments despite trust and policy challenges.

—🛵 Ola Electric, led by Bhavish Aggarwal, is set to lay off over 500 employees in a new restructuring push aimed at improving profitability, as per Moneycontrol. This follows previous layoffs, including 1,000 staff in July 2022, when Ola shut down Used Cars, Cloud Kitchens, and Grocery Delivery to focus on EVs. In September 2022, similar moves preceded its IPO. Meanwhile, Ola Consumer announced cuts affecting 10% of its workforce earlier this year, alongside the exit of Ola Cabs CEO Hemant Bakshi.

—🛍️ Delhi's Khan Market holds its spot as the 22nd most expensive retail location globally, with annual rents at $229 (Rs 19,330) per sq ft, per Cushman & Wakefield’s 2024 'Main Streets Across the World' report. Milan's Via Monte Napoleone, at $2,047 per sq ft, edges out New York's Upper 5th Avenue as the priciest retail street, The Business Standard reported. Khan Market, India’s costliest high street, saw a 7% rise in rents this year, reflecting the country’s robust economic growth. Globally, London’s New Bond Street ranks third, followed by Hong Kong’s Tsim Sha Tsui. India recorded an 11% retail leasing growth, underscoring its economic momentum.

SPONSORED

• Forward Future AI gets you AI-Ready: News, Education, and Community. Subscribe

• TechInsights AI Newsletter explore AI's full spectrum: trends, tech, policies, funding, innovations, and business impacts. Subscribe

SUPPORT THE CORE

Dear Readers,

Some of you have written to us expressing your intent to contribute to The Core’s journalism. While we currently do not have a subscription or membership plan, you can still support us by clicking the link below.

Another way to support The Core is by sharing this newsletter with like-minded people in your communities, colleagues, friend and family.

Was this email forwarded to you? Subscribe