NEW DELHI: All it took was one short-seller report and three trading sessions for the Adani Group to become a deadweight instead of a major driver for India’s expanding stock market.

At least eight firms linked to Asia’s richest man have contributed to nearly 49% of the declines in the MSCI India Index since last Wednesday, when Hindenburg Research published a blistering report on the conglomerate’s alleged malpractices.

That’s an abrupt reversal from last year, when Adani-linked shares helped pace a world-beating rally in the nation’s stocks.

The rout in Adani-related companies, including losses that reached daily limits, has undermined Indian stock benchmarks, which have become the biggest laggards in Asia-Pacific this year.

That’s worsening the outlook for a market that was already coming under pressure after a rally in 2022 and signs of a rotation into North Asia.

“It certainly is no great advertisement for India and risks damaging short-term sentiment,” said Hugh Young, Asia chairman of ABRDN Plc. “We don’t invest in Adani, so the concern is a broader one.”

Adani-linked shares have now lost a combined US$68bil in market capitalisation, including those at Adani Wilmar Ltd and New Delhi Television Ltd that are not part of the MSCI measure.

Those declines account for 51% of the slide in the nation’s stock market capitalisation since Jan 24, according to data compiled by Bloomberg.

The total valuation of India’s stocks has dropped to US$3.2 trillion , or 3.1% of the global share market capitalisation. That proportion climbed to as high as 3.6% last year as the Asian nation overtook the United Kingdom to become the world’s fifth-largest equity market.

Concern about Adani’s sprawling business operations, which stretch from ports to power companies, has arisen just as overseas investors are looking to shift allocations to China following the end of that country’s zero-Covid policy.

Funds are also seeking to return to beaten-up chip stocks in South Korea and Taiwan.

According to Bloomberg data, foreigners were net sellers of India for the majority of January.

“The recovery in China is playing out,” said Benaifer Malandkar, chief investment officer at Raay Global Investments Pvt in Mumbai.

“Foreigners were underweight in China for a while, but they will cover up, so this is likely to weigh on India in the short term.”

Global funds pulled a net US$784mil from Indian shares on Jan 25 and Jan 27, the first two trading days after the Hindenburg report was published.

The outflow may have been even deeper on Monday, when Adani Total Gas Ltd and Adani Green Energy Ltd both tumbled by the 20% daily limit.

 - Bloomberg