State Insurer in India Defends Adani Investment Despite Short Seller Criticism

India’s largest life insurer is investing more money in Gautam Adani’s flagship unit, despite fraud allegations from a short seller that wiped out more than $50 billion of the conglomerate’s market value in two sessions.

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State-controlled Life Insurance Corp. of India is investing about 3 billion rupees ($37 million) as an anchor investor in a $2.5 billion new share sale by Adani Enterprises Ltd., according to a filing. The investment would add to its current holding of 4.23%.

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LIC's investment in Asia's richest man and his beleaguered group on Jan. 25 signaled its vote of confidence in the company. This comes after US-based Hindenburg Research released a report earlier this week characterizing the company's meteoric rise as "the largest con in corporate history." LIC is among 33 institutional investors coming in as anchors in the FPO, along with names such as Abu Dhabi Investment Authority and Al Mehwar Commercial Investments LLC.

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While the amount Mumbai-based LIC is investing in Adani Group is relatively small, it marks a contrarian position to other domestic financial institutions that have little to no Adani investments. This comes at a time when stocks exposed to Adani Group have been hit by a contagion, with LIC plunging the most in more than a month on Friday in Mumbai.

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Arun Kejriwal, founder of Kejriwal Research & Investment, believes that LIC is a contrarian thinker. He believes that the company has always made money during periods of market volatility. LIC does not receive money for short-term investments. Instead, it focuses on long-term investments.

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I emailed and texted the LIC chairman seeking comment on its Adani Group investments, but I didn't receive an immediate response. LIC is one of the most important institutions in India, with over 250 million policyholders and assets under management that are as large as the nation's mutual fund industry. Its exposure to the Adani Group, which is known to be closely aligned with Prime Minister Narendra Modi's development goals, is also symbolic of the tycoon's political clout.

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LIC is an investor in five Adani companies, with stakes ranging from 1% to 9%. On Jan. 24, these stakes were worth a total of 722.68 billion rupees. This was just before the Hindenburg report was published.

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LIC has invested more in Adani group companies than mutual funds. This is because LIC believes that the Adani group is a good investment opportunity.
As of December 2022, no other Indian insurance company had any significant stake in the stock market, according to data filed with the stock exchanges. Despite some wild rallies by some of the stocks, most mutual funds have largely stayed away from the group. For instance, Adani Enterprises surged over 1,900% in the last five years, trumping even Tesla Inc.

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State-backed financial institutions in India are facing increased scrutiny, which could have implications for the country's financial stability. This is a concern for the millions of Indians who have their savings managed by these institutions. Jairam Ramesh, a lawmaker with the opposition Indian National Congress party, said this in a statement on Friday.

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The sell-off that was triggered by Hindenburg's report is now adding more weight to concerns about the company. The rout deepened on Thursday, with some units like Adani Green Energy Ltd. and Adani Total Gas Ltd. tumbling by their daily limit of 20%. Adani Enterprises fell by 19%. The short seller has alleged that the Adani Group was involved in "brazen" market manipulation, accounting fraud, and money laundering using offshore shell companies. The conglomerate has dismissed the report as "a malicious combination of selective misinformation and stale, baseless, and discredited allegations." It said it is also exploring legal action.

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Adani Group Chief Financial Officer Jugeshinder Singh acknowledged last week that domestic institutional investors have not shown much interest in the company.
"We understand that mutual funds missed out on the Adani growth stock rally," he said at a press briefing. "We should have communicated better with mutual funds."