A short seller attack on the Adani conglomerate raises bigger, darker questions about India’s credibility as a destination for global investors. Just 10 days ago, Gautam Adani and his sprawling energy-to-ports empire looked invincible. Now, a damning short-seller attack has left the billionaire battling the worst crisis of his corporate life – and is raising bigger, darker questions about India’s credibility as a global growth engine and a destination for international investors. According to an article published on Bloomberg website, the Adani Group has shed $108 billion in market value since Hindenburg Research accused it of stock manipulation and accounting fraud in a Jan. 24 report. But it was only when the tycoon scrapped a $2.4 billion share sale this week that the potential for lasting impact became clear. Adani’s rebuttal had failed to reassure investors. Once ranked No. 2 among the world’s wealthiest, he has tumbled to No. 21 on the Bloomberg Billionaires Index. The small, but famed, US short seller has revived old doubts about corporate governance at the Adani conglomerate. The fallout from its almost 100-page report threatens to undermine investor confidence in India more broadly, and in the nation’s regulatory framework – whether its claims ultimately prove to be true or not. “Things are moving very fast in the market, with a potentially major reassessment of the risks of investing in Indian equities by international investors,” said Singapore-based Gary Dugan, chief executive officer of Global CIO Office, an asset manager and financial advisory firm. “That reassessment includes governance, corporate transparency, nepotism and indebtedness.” Adani, 60, has been close to Prime Minister Narendra Modi for decades. And his business – with investments in capital-intensive projects such as airports, power plants and data centers – is at the heart of Modi’s growth agenda. As a national champion, the tycoon has aligned his business interests with Modi’s development goals, often stepping in where the state lacks resources or competence, helping create thousands of jobs. Of the slide in asset prices continues and further shakes investor confidence in Adani’s empire, that would be a setback for India’s growth story at a pivotal time. Banks like HSBC Holdings Plc and companies like Apple Inc. are expanding in India to hedge their exposure to China. “The truth is that Adani’s scandal is not coming at the best of all times for India as China is reopening,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. “Foreign investors are clearly watching.” Hindenburg, in its report, alleged that Adani used offshore shells for money laundering and siphoned from listed companies. The short seller, which took a position in offshore Adani securities, characterized the group’s meteoric rise as “the largest con in corporate history.” While many of the claims have circulated among the Indian investing class and media for years, their emergence in the global conversation seemed to trigger a crisis of confidence. Hindenburg has repeatedly declined to comment on its short positions on Adani. In a 413-page response, Adani said Hindenburg’s conduct was “nothing short of a calculated securities fraud under applicable law.” But the damage was done. Eight of the 10 worst-performing stocks in the MSCI Asia Pacific Index this year are now Adani firms, while bonds issued by the Indian billionaire’s flagship company have fallen to distressed levels in US trading. The turmoil has not only hammered Adani Group shares but is also hitting banks that have given loans to the companies. Government-controlled State Bank of India has tumbled 11% since the Hindenburg report came out. Foreign institutional investors pulled a net $2 billion out of India’s stock market from Jan. 27 through Jan. 31, the biggest three-day sell off since March, according to data compiled by Bloomberg. “The Adani-related headlines are generating a high level of negative attention, which could dampen investor appetite for Indian stocks,” said Jian Shi Cortesi, a fund manager at Zurich-based GAM Investments, which oversees more than $80 billion in assets. “While we don’t see Adani dragging down the whole Indian stock market, we think this could lead to India underperforming other Asian markets such as China.” However, some veteran emerging-market investors like Mark Mobius remain unfazed by the meltdown and dismissed chances of a broader contagion. “This does not reflect the overall viability of the Indian market and economy,” said Mobius, co-founder of Mobius Capital Partners LLP. “We don’t make decisions based on the index but on the viability of individual companies over the long term.” Hugh Young, Asia chairman of abrdn Plc, which managed more than $600 billion in assets as of June, said his fund is waiting to dive in after the declines. But it’s apparent even to casual observers that the declining fortunes of the Adani empire has the potential to shake the fundamentals of the Indian economy in a way few other corporate crises can. In fact, Adani’s key line of defense is to braid together the fate of his conglomerate with that of Asia’s third-largest economy.