Why India’s billionaires banded together for Adani

What makes the corporate czars’ support extraordinary is that it came through after a three-day, $68 billion rout in Adani shares. The New York-based Hindenburg Research accused the infrastructure giant last week of alleged stock manipulation and accounting fraud. The group has denied this as baseless and an attack against India itself.

That nationalistic spin bore fruit to the extent that the issue went through even though investors could have bought the stock cheaper in the secondary market. However, any relief may be temporary. Hindenburg’s allegations are still out there, as are the short seller’s bearish bets of undisclosed size in foreign markets. The Adani Group has already had to top up collateral for a $1 billion loan made by a group of banks including Barclays Plc, Bloomberg News reported Tuesday. It remains to be seen whether the jitters die down, or the locus of nervousness around the highly leveraged empire shifts from equity to debt.

For now, though, the real message has come from the rescue team. We don't know its motives. Adani’s proximity to Prime Minister Narendra Modi is no secret, even though the businessman says he hasn’t sought or received any favors. Wealthy people anywhere want to be on the right side of their government. Besides, a prolonged Adani-Hindenburg battle can hurt all of India Inc’s valuations, at least in the short run. What’s more problematic is if these men — the names I have seen suggest it’s a men’s-only club — genuinely believe that the best defense of their own long-term interests is to side with anyone from their tribe who comes under attack from a foreigner with 106 pages of allegations and 88 questions.

Then it’s a descent into what Arvind Subramanian, a former economic adviser to the Modi government, has described as India’s “stigmatized capitalism,” or the view that its private sector can’t be trusted. The Adani-Hindenburg saga has already dented investor confidence. As the soon-to-be most-populous nation looks to make the best use of its 1.4 billion consumers and its young and hungry workforce, it needs to reassure the world of both its abilities and its intentions, something it did very successfully in the 1990s.

With some exceptions, wealthy business families were missing from the vanguard of the country’s post-socialist reforms. Talented middle-class youngsters came out of nowhere and went on to script large successes in everything from computer software to telecom. Multinationals like General Electric Co. and Citigroup Inc. made heavy use of the nation’s technically educated, English-speaking talent even when the local consumer was too poor to give them business. This professional class spawned a fresh crop of entrepreneurs. The new-age Indian business courted global investors by promising disclosures and transparency superior to what they could get in most other developing countries. The quality of domestic stock markets improved tremendously. India Inc. earned trust — at home and abroad.

Continued capitalistic success requires much more of that same openness, competition, and continuous regulatory and institutional improvement. Otherwise a small group of bigwigs will, in the garb of nationalism, chase out innovative foreign firms and swallow or shut down domestic startups that threaten them. That’s why this apparent billionaire bromance is to be frowned upon. The impromptu national team may have came together as much for themselves as for Adani or New Delhi. And that’s what should worry India.