Impact of Inflation on Indian Consumer Spending After Adani Group’s Market Decline

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For some Indians, the loss of more than $130 billion in Adani’s market value was a blow to national pride. But even those who refuse to identify Adani with India are forced to admit the big reason for the fiasco: the country’s desire for more beautiful airports, wider roads, faster rail links, etc. is not supported by the purchasing power of the masses. The stratospheric value of shares may attract debt obligations of asset-owning firms for some time. Ultimately, however, misallocated capital will not put an end to infrastructure shortages.

Look deeper into the collapse of Adani, and you will see the picture: most of the group’s shares that have failed this year have never been able to boast of excellent capital efficiency. Adani Enterprises Ltd., the flagship, has a return of less than 10% on invested capital, as does Adani Green Energy Ltd., one of the largest solar energy producers in India. Even the increased profitability of Adani Total Gas Ltd. It may be the result of the fact that its gas business has won tenders for the supply of an increasingly large geographical area — in accordance with the government’s desire to provide 90% of the population with a cleaner source of energy than diesel fuel, coal and cow manure cutlets.

No gloss of stock market valuation can hide the flaws underlying the economy. The group says that refinancing its net debt of $24 billion should not cause problems. However, if capital rises in price, Adani’s juggernaut may stumble.

Before Adani became synonymous with India at home and abroad, Hindenburg Research had a bombshell effect: a 106-page report claimed that the billionaire was trying to pull off the biggest scam in corporate history. Adani Group responded with a 413-page denial, but could not save the stock sale. Since then, the group’s shares have plummeted, although the struggle for corporate reputation has acquired political overtones. Ahead of Modi’s re-election in next year’s general election, the opposition is trying to accuse him of having a relationship with a businessman from his home state of Gujarat.

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Whatever the outcome of the gladiatorial duel, one thing is clear: from airports and roads to green hydrogen, data centers and mining, five companies that the conglomerate planned to bring to public markets between 2026 and 2028 may have to be incubated. Bondholders and banks will be able to calm down if they see enough solid assets as collateral, but equity investors once failed. Now they will need proof of reliable underlying profitability.

P.S. Adani is a network of the largest companies in India.

PineBridge Investments Using Recent Sell-Off in Indian Market to Buy Stocks for Multi-Asset Portfolios

PineBridge Investments, an American asset management company, is using the recent sell-off in the Indian market to start buying stocks for its multi-asset portfolios, betting that explosive corporate governance charges against the Adani conglomerate will not stop the boom in growth and production.

*️⃣ While Hindenburg Research’s January 24 short seller report on tycoon Gautam Adani’s business empire was one of the reasons investors pulled billions of dollars out of Indian markets, Michael Kelly, who oversees Pinebridge’s $17.8 billion global multi-asset portfolios, is one of those going to another side.

According to Kelly, who is also a member of the PineBridge management committee, the stock collapse has become an entry point into a historically expensive market. His funds were not in Indian stocks before the Adani securities debacle, but they have since been bought, Kelly says, adding that “we are not necessarily done.”

🟡 Corporate governance risks similar to those Hindenburg mentioned exist not only in emerging markets, Kelly is sure, noting the massive corporate bankruptcies in the United States in 2001-2002, which were caused by fraudulent accounting methods at Worldcom and Enron. He also does not discount the risk of new turmoil in Indian markets as corporate governance controls increase.

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“If you shine a spotlight, you’ll find something,” says Kelly. “You can never say that there is only one cockroach. There was Worldcom in the USA, and then another cockroach named Enron,” he added. “Having said that, if you shine a light on India, you will also see a lot of good companies.”

According to Kelly, as the MSCI India index is about 10% below the all-time high reached in December, some of these names have become more accessible, although the index is still trading at about 20 times forward earnings, which is twice the ratio of the main emerging market benchmark.

The Rally of Consumer Stocks in India Is Over

According to the top manager, the rally of consumer stocks in India is over According to one of the country‘s largest money managers, the rally in shares of India‘s largest consumer companies has probably exhausted itself, as margins are close to historic highs, and firms do not seem to want to increase investments. We think revenue growth will disappoint,” said Anish Tavakli, who oversees about $4.8 billion as deputy director of investment at ICICI Prudential Asset Management in Mumbai.We don‘t think volumes will recover if these companies don‘t increase investments in brand creation, marketing, product innovation, consumer spending.” The global resurgence of the pandemic has led to an increase in the share of consumers worldwide, especially in India, where the history of domestic demand has long been touted by global funds, which led to billions of inflows in the second half of 2022. However, as inflation accelerates and hits rural populations especially hard, cracks appear in the country‘s consumption dynamics. The negative impact of inflation will lead to a decrease in middleincome consumption in categories such as fast food restaurants, food delivery, paints and durable goods, according to a report by Goldman Sachs Group Inc. last week. Core inflation in India has exceeded 6% over the past 16 months, which threatens to slow economic growth and consumer spending. The central bank expects the consumer price index to average 6.5% in the current fiscal year by March. Tavakli said that for one of his other funds, he has reduced his investments in metallurgy and nonbank financial companies and is instead leaning towards housing and constructionrelated sectors in anticipation of positive earnings surprises.

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Which Indian companies are listed in the USA?

There are not so many of them. 11 pieces:

1. HDFC Bank (HDB), bank, capitalization, capitalization 114.01B$
2. Infosys (INFY), information technology, capitalization 81.95B$
3. ICICI Bank (IBN), bank, capitalization 74.09B$
4. Wipro (WIT), information technology, capitalization 27.27B$
5. Dr. Reddy’s Laboratories, drug manufacturers, capitalization 9.06B$
6. WNS Holdings (WNS), data and voice communication services, capitalization 4.17B$
7. MakeMyTrip (MMYT), tourism, capitalization 2.89B$
8. Sify Technologies (SIFY), telecommunications services, capitalization 314.19M$
9. Azure Power Global (AZRE), RES, capitalization 252.26M$
10. Yatra Online (YTRA), tourism, capitalization 141.98M$
11. Lytus Technologies (LYT), software, capitalization 30.82M$

And listing on the stock exchanges of India (Mumbai Stock Exchange and National Stock Exchange of India) is still a modest 4,418 companies 😎

@ESG_Stock_Market

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