Investor reaction to Adani market rout after short selling report

SINGAPORE (Reuters) – The Adani Group has called off a $2.5 billion share sale as losses of the group’s largest company climbed to more than $100 billion in the wake of the US short seller’s report.

This defeat raised fears that the fallout could also affect confidence in India more broadly.

Here are the investment managers’ comments:

Monica HSIAO, Chief Investment Officer at TRIADA CAPITAL, a trust fund based in Hong Kong:

“We were happy to take our profit from last week’s volatility trading via Adani Bonds, because we believe there is a ground to rest on FPO (follow-on public offering) hopes and sold aggressively on their announcement of the FPO subscription.”

“But after this shift by the company to pull out of the FPO as stocks rallied, we see the market losing confidence in how to gauge where the bottom is, and although there will be bounces covering short positions, we expect more of an underlying downside. The risks given that more private banks (likely) to cut or reduce margin and (there may be) potential risks to their ratings and broadening inquiries by regulators.”

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Sat Dahra, Portfolio Manager, Distributed Income Strategy at Janus Henderson Investments, Singapore:

“We own less than 2% of Indian stocks and would need to see a serious correction before we consider adding especially in light of recent issues that have the potential to sour sentiment towards an expensive market.”

“We said earlier that in the face of rising external risks, it is difficult to see India continue this level of valuation premium over other markets especially if China shows a sustainable recovery from any easing of the zero COVID policy.”

George Popas, Head of Research, K2 Asset Management, Melbourne (Lightweight India)

“The Adani effect works both ways given the market capitalization relative to the index. (Investors) have benefited from the upside and are obviously dealing with the downside given current events.

“The weighting risks are similar to Samsung’s heavy weight in the Korea index… The (Indian) index will need to impose a single cap on shares in the future.”

“To attract more capital, the Indian economy needs more FTAs ​​(Free Trade Agreements) and more financial market reforms – a long process.”

Man Wing Chung, Principal Director, Asia Value Partners EX JAPAN FUND, Hong Kong (Lightweight India)

“The Adani incident appears to be a special event and contagion so far appears to be limited except for a few names in the financial sector. As there is currently no significant change in market valuation, the overall market remains expensive in our view.”

Jamie Lim, Chief Investment Officer, Model Asset Management, Singapore (No Model has a position in Adani)

“We are short on Nifty, but this is a trading view. At this point in time you don’t think it’s a systemic risk because the banks’ balance sheets are strong because they got rid of a lot of leverage during the COVID period.

“You don’t see broader ramifications for the Indian rupee because the RBI has strong reserves and has shown willingness to use those reserves to defend the currency. Adani is a well-known name in India, so I think most participants should not associate the same issues with other Indian assets.”

“Having said the above, I do not expect to see a quick resolution on the questions that have been raised, and as such there is likely to be an ongoing period of de-risking associated with direct and indirect exposures to the name.”

Joshua Crabbe, Head of Asia Pacific Equity at ROBECO, Hong Kong (Heavyweight on India on valuations)

“India unlike the rest of Asia was at the higher end of its valuation range. We don’t have any exposure to the kind of highly leveraged companies – but that just shows the impact of some bad news – the reinsurance/Adani balance sheet can do to expensive markets. (India) is still a great long-haul story and it’s getting more and more expensive now.”

Additional reporting by Samar Zain in Hong Kong, Vidya Ranganathan, Tom Westbrook, Ray Wei and Ankur Banerjee in Singapore; Editing by Edwina Gibbs

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