India’s equity markets were recently pinched after short-selling Hindenburg Research issued a scathing report on Adani Group – a sprawling conglomerate controlled by one of the country’s richest men, Gautam Adani.
Adani, who has suffered a major haircut to his net worth in the wake of the Hindenburg report, is also connected to the highest levels of the Indian government, including Prime Minister Narendra Modi. Combine that with the point that the Adani Group consists of seven listed entities and it’s not surprising that the Hindenburg report cast a pall over the Indian investment thesis.
However, that thesis remains intact and it’s accessible via multiple U.S.-listed exchange traded funds, including the VanEck Digital India ETF (DGIN ). In fact, DGIN is highly relevant in the India investment conversation following the Adani Group controversy because the VanEck ETF is a growth-oriented asset while Adani focuses largely on energy and infrastructure. Translation: Weakness in Indian equities created by the Adani scenario could open the door to opportunities with ETFs such as DGIN.
“But money managers don’t see the crisis derailing the longer term prospects for India, the world’s fifth largest economy, that has increasingly become a darling of market strategists and geopolitical analysts. The long-term economic promise of India, with its young population, and efforts by Modi to upgrade infrastructure and woo manufacturers to remake India as an alternative for those looking to diversify away from China, still holds,” reported Reshma Kapadia for Barron’s.
DGIN, which follows the MVIS Digital India Index, holds 35 stocks. With its focus on growth, it allocates over 81% of its roster to the technology and communication services sectors, which are viewed as somewhat insulated from the Adani fallout. Plus, some experts believe that fallout may be overstated.
“The Adani family owns roughly 60% of its companies, limiting other investors’ exposure. MSCI only added some of the conglomerate’s listed companies to its indicies in recent years, with flagship Adani Enterprises added in 2021,” added Barron’s.
Further supporting the long-term case for DGIN is that companies across India are looking to better address debt issues in the name of improving credit ratings. On a related note, two Adani entities recently announced plans to replay a combined $1.6 billion in obligations.
“Money managers see the beginnings of a recovery in India’s credit cycle after a multiyear period where banks were wary about lending after having to clean up bad debt from their balance sheets. That should help spark an investment cycle underpinning growth,” concluded Barron’s.
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