The battle royal between a well-known U.S. short seller and a well-connected Indian billionaire hits the Indian markets at a delicate time.
Driving the news: Fraud allegations launched by U.S. short seller Nate Anderson’s Hindenburg Research have cratered the share prices of the various entities that make up the sprawling coal, cement, ports and infrastructure conglomerate run by Gautam Adani, who Bloomberg calls Asia’s richest man.
The big picture: After outperforming other major markets over the last couple of years, Indian stocks have suddenly started to stumble.
- The MSCI India index has started the year down nearly 3%, compared to a gain of 5% for the S&P 500 and roughly 13% for MSCI’s main China index. (It fell into negative territory after the Hindenburg report’s publication.)
Between the lines: Even without the Adani issue complicating matters, Indian stocks still seem ripe for a pullback — a victim of their relative recent success.
- For the last few years, India’s stock markets outperformed other major emerging markets like China.
- The tech-heavy tilt of its benchmark indexes helped for much of the COVID-era — as in the U.S., these stocks were boosted by low-interest rates. And the country’s strong underlying growth rate — averaging nearly 6% a year after inflation for the last decade — was attractive to global investors.
- But that’s left India relatively highly valued, compared to other emerging market countries.
And with China’s government apparently set on driving a strong reopening from its zero-COVID lockdowns, investors have been shifting money out of India, and into Chinese stocks where they see more upside.
What they’re saying: “Since November, Asian mutual funds have raised their exposure most in Hong Kong/China and North Asian markets of South Korea and Taiwan, but reduced exposure in parts of ASEAN (Indonesia, Singapore) and India,” Goldman Sachs analysts wrote in a recent client note.
Yes, but: As we’ve said plenty of times about the U.S., the stock market is not the economy.
- Despite the stock slump, India’s economy still appears to look quite strong, with the latest data from the IMF forecasting 2023 growth of over 6%.