Circa March 2023 and this comment - ‘More confident in Adani Group’s business prospects’ from the LIC Chairperson, helped to stabilize the Adani Group companies’ shares following the mayhem that ensued post the attack by Hindenburg.

At that time, LIC was on the dock given its high exposure to Adani Group, its clarifications in January 2023 that Adani Group investments accounted for less than 1 per cent of overall assets, notwithstanding. LIC investors were concerned that it had accounted for over 5.5 per cent of LIC’s equity portfolio.

This time though, while LIC investments in Adani still account for over 4-4.5 per cent of its equity portfolio, a different investor is on the dock – GQG Capital.

While LIC Chairman’s comments helped set a floor to Adani shares last time, it was the entry of GQG as an investor in the Adani Group companies that kick started the strong recovery in the stocks.

Such was the confidence investors gained from there, that stocks like Adani Ports and Adani Power raced up to well above pre-Hindenburg all times highs, by end of 2023. Yes, stocks like Adani Total Gas and Adani Energy solutions continued to languish, but a strong case was made that Adani had triumphed post the attacks.

And of course, good earnings growth reported by Adani Group companies too helped, although valuations remained expensive.

Too big to fail

But now there is something to worry when GQG is on the dock. Investors in GQG’s stock (listed in Australia) gave their first verdict when the stock plunged by 20 per cent on November 21.

A buyback announcement amounting to around 1 per cent of GQG’s stock, hardly enticed investors the next day (stock closed up by a modest 3.7 per cent). This portends probably the first major challenge to GQG’s management and its reputation, which has had a solid track record across its four global investment strategies (International Equity, Global Equity, Emerging Markets Equity and US Equity ) backing it, since inception in 2014.

Given its reputation, its stakes in Adani Group companies which amounted to almost $9.5 billion in October 2024, are now too big to fail. In total these stakes account for 6 per cent of its AUM of around $158 billion and 8 per cent in one of its emerging markets investment vehicles (Bloomberg data).

The rationale for its overweight positions in Adani Group companies, a level of bullishness not shared by other institutional investors in India (barring LIC) might be the key questions that GQG’s clients might be asking now.

For example, its stakes across Adani Group companies account for anywhere between 12 to 20 per cent of free float of the Adani Group companies. Its stake combined with that of LIC’s account for 19 to 34 per cent.

If under pressure from clients GQG is forced to reduce its positions in the secondary markets in some of these companies, the pressure on the stocks could be significant. GQG’s stakes account for anywhere between 18 to 45 days of the average of the three months’ daily trading volume in NSE (accounts for over 90 per cent of secondary market stock trades in India) of the respective stocks.

So even if it were to reduce its stakes marginally, the impact will reverberate unless another institutional investor comes to the rescue.

GQG will have to weigh the details and its client’s perceptions on the emerging details and make a call. It would be worth noting that a sizeable 30 per cent of its AUM comes from a sub-advisory relationship with Goldman Sachs, wherein GQG as an asset manager, advises a fund that is run by Goldman Sachs.

So how the primary advisor to clients for this fund – a Goldman Sachs unit, feels about allegations can weigh on GQG’s decision (the sub-advisor is chosen by the primary advisor).

Mexican stand-off?

Hence what Adani needs now is an encore of what LIC Chairman said in March 2023, but this time from GQG’s Rajiv Jain. This can help put a floor and send a message that global investors are undeterred by these allegations considering the fact that most GQG’s clients are investors from developed markets.

In the absence of that one will have to start worrying about a possible Mexican stand-off between GQG, LIC and the other set of public investors watching each other to see who is going to pull the trigger first and exit some stakes.

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