Adani spill-over risks: not out of the woods yet

In a crowded field given the FY23/24 Union Budget and the RBI’s more-hawkish-than-expected policy announcement, the Adani short-selling crisis has been the main story over the past month. So far at least, there are few signs of broader contagion. Foreign outflows from Indian equity markets have been small and corporate bond spreads have not widened to any great degree, suggesting that investors are not especially worried about corporate risks on a systemic level.

But that doesn’t mean the economy and financial system is out of the woods. Policymakers have played down concerns about banking links to the Adani Group but it’s fair to say that individual exposures may take a long time to surface. And Indian banks look much more vulnerable to large loan losses than many of their EM counterparts.