Why Adani’s $100 billion loss hasn’t tanked Indian markets

That would be a frightening prospect not just for India but for the world. The country’s economy recently passed Britain’s to become the world’s fifth largest, and it is the only big one – China’s included – that has clocked strong and steady growth since pandemic restrictions were relaxed.

But the fears of a broader market contagion have not come to pass. Indian equities as a whole enjoyed a calm week in Mumbai, the country’s financial center, and have held largely steady since the Adani collapse. India’s main market index is nearly 2.5% above where it stood a year ago, even as U.S. stocks have fallen by more than 4% during the same period.

The steadfastness attests to the size and seeming strength of the broader Indian business landscape. Adani fell spectacularly after it was accused of fraud and stock manipulation by a small New York trading firm, but the debacle is barely a splash from the big Indian bucket. India is home to about 1.5 million companies and a well-capitalized stock market: Its National Stock Exchange fluctuated comfortably between $3 trillion and $3.5 trillion last year.

The market resilience has reinforced a reality that the rest of Indian business would surely like to see highlighted more directly: that the Adani Group, a family-run infrastructure- and energy-based conglomerate, in some ways stood alone.

The flaws identified by Adani’s critics – opaque structures, complicated by cross shareholding, maybe even puffery in the bookkeeping – can be found in other Indian companies, if on a much smaller scale. But many of India’s actually profitable firms are relative models of probity, observers say, even in the go-go context of the Indian market. Several rank on a list kept by Refinitiv, an international market data provider, of the world’s best-governed companies, including

and Dr. Reddy’s Laboratories.

While calling the Adani Group “the largest con in financial history,” Hindenburg Research, the New York investment firm, itself sounded a bullish note on India proper, calling it “an emerging superpower with an exciting future.” More immediately, the country’s central bank, the Reserve , signaled Wednesday that it would be getting on with business as usual, raising interest rates by a quarter-point and leaving open the possibility of further increases. That put it in harmony with its big Western counterparts, which are likewise making a priority of tamping down inflation.

The initial concern, as the fallout from Hindenburg’s accusations forced the Adani Group to cancel a major share offering on Feb. 1, was that the plague of doubt would spread throughout India’s capital markets. Would Indian or foreign investors dump India’s stocks and bonds at random, suddenly frightened that their value might plummet, too?

The reputation of the Indian regulatory system has taken a knock, and Prime Minister Narendra Modi has faced questions about his close ties to the Adani Group’s founder, Gautam Adani. But other companies’ shares, whether in infrastructure or in unrelated areas, are holding up. The quiet side of Indian capitalism intends to keep on spinning money, wherever the pieces of the Adani empire may fall.

In the years since Modi took power, Adani had loudly cast his company as in service of the Indian government, and when his conglomerate came under attack by Hindenburg, it mounted a nationalistic defense, accusing its naysayers of causing “anguish for Indian citizens.”

The conjoined nature of the Modi and Adani organizations, however, is not typical of Indian capitalism in the 21st century. Saurabh Mukherjea, founder of Marcellus Investment Managers in Mumbai, said that in the past decade, $1.5 trillion in value had been added to India’s public markets, 80% of it from just 20 companies.

Some of those, like Adani, make a lot of noise, flaunting their heft and political connections. But 90% are “clean, well-run franchises,” Mukherjea said. The leaders of “the biggest, most consistent money-compounding machines keep their mouths shut and their heads beneath the parapet.”

The Indian public tends to be unfamiliar with, for instance, the CEOs of firms like

or , who are rarely seen embracing politicians.

In private, some of the country’s business leaders feel satisfied to see Adani getting the comeuppance they think he deserves. Not just for personal reasons – they think it will be good for corporate governance. India’s Supreme Court, too, indicated that it saw room for improvement, ordering the government on Friday to answer questions on the matter.

In public, though, few will say much about Adani. His friends are still powerful, even if he is diminished.

Sanjay Reddy, the head of GVK, a rival infrastructure conglomerate that lost its most profitable airports to the Adani Group after a raid by federal agents, took to the airwaves to deny a politician’s claim that the government had “hijacked” the airports for Adani. (He made his remarks to

, a news channel that had been frequently critical of the Modi government before Adani bought it last year.)

It is too soon to say how far the Adani Group will fall, or how it will land. The calamitous plunge in the stock price of a conglomerate once valued at $220 billion paused early this week, at roughly halfway down to zero, as bargain hunters picked up shares at fire-sale prices. But Adani shares resumed their decline later in the week; MSCI World, an influential index, decided Friday to reduce some of the stocks’ weighting, which in turn pushed investors to sell off the shares.

Nathan Anderson, Hindenburg’s founder, tweeted that the firm’s own work had been “validated” by the MCSI decision. In the weeks since Hindenburg accused Adani of financial misdeeds, some banks had refused to take Adani shares as collateral, and Moody’s on Friday lowered its outlook on six Adani bonds to a status that left them barely investment grade.

Others have defended Adani, cautiously. The signals are still mixed: Norway’s sovereign wealth fund, for instance, dumped its holdings in three Adani stocks at the same time that Goldman Sachs was rating

, a subsidiary, as a “buy.”

Aswath Damodaran, a finance professor at New York University, wrote that even if the worst that has been said about Adani turns out to be true, it has not perpetrated “a con game.” By taking on huge amounts of debt to fuel its growth, Damodaran wrote, Adani had taken “a risk, perhaps a poorly thought through one,” though one not unusual in the infrastructure business, especially in a place like India, where investors may expect strong growth for years to come.

One fear that materialized as the Adani Group began its descent was that its troubles could ripple through its lenders to afflict other borrowers. But as its books are scrutinized, it has become clear that its debt is concentrated among lenders backed by the Indian state, mainly the Life Insurance Corp. of India and the

, and by foreign banks. Neither poses much risk of pain among India’s ordinary citizens, but if the life insurer were to incur billions in losses, it would impose a burden on the country’s fiscal deficit.

Still, there is a danger that Adani may have secret sources of leverage. If it were discovered to have hidden loans through some of the shell companies that Hindenburg has examined, that could help explain why it sought to drive its valuation to astronomical proportions.

If Adani fell into bankruptcy – it is not clear how likely a threat that is – its big plans for building Modi’s infrastructure-and-solar-panels vision would go awry. Even then, its main assets, like ports and power lines, would retain value if they were to be taken over by creditors.

This article originally appeared in The New York Times.