India's stock market crisis isn't just the Adani Group's problem — it's a political issue for Prime Minister Modi too

On Monday, hundreds of Indian opposition party members demonstrated on the streets of New Delhi, demanding an investigation into the Adani Group.

• Indian tycoon Gautam Adani's companies have lost over $110 billion in market value since a US short seller attack in January.
• Since then, Adani's ties with Prime Minister Narendra Modi have come under scrutiny.
• Opposition party members took to the streets on Monday. They demand a probe into Adani's business empire.

Indian tycoon Gautam Adani's troubles with his conglomerate's stock price have spilled over to his country's politics — his ties to Prime Minister Narendra Modi have now come under scrutiny.

Ever since US short seller Hindenburg Research released a scathing report on January 24 alleging a "brazen stock manipulation and accounting fraud scheme" at the conglomerate, the shares of Adani Group companies have been in freefall. 

And now angry protestors are demanding an investigation into these allegations. 

On Monday, hundreds of Indian opposition party members demonstrated on the streets of New Delhi, hitting out at investments into Adani's firms made by several state-backed companies as a market rout tore through the companies, Reuters reported.

Even Modi has been dragged into the kerfuffle — since both he and Adani are from the western Indian state of Gujarat. 

The prime minister's political opponents say that the leader favors Adani — a claim the Modi government has rejected, per Reuters. Adani himself told a local TV channel on Friday that claims of his rise are thanks to a close friendship with Modi are "baseless," reported the Times of India. "The fact of the matter is that my professional success is not because of any individual leader," said Adani.

Still, perceived coziness between Modi and Adani has become an asset to Modi's political opponents, Steno Research, a Denmark-based research house, wrote in a February 3 report published on the Smartkarma research platform.

"The Hindenburg scandal is the perfect weapon for the Indian political opposition against PM Modi. Not only is Modi's relationship with Adani coming into question, Modi's growth model is too," the research firm wrote.

The Adani Group itself said in a January 29 report refuting Hindenburg's claims that the short sellers' report was "not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity, and quality of Indian institutions, and the growth story and ambition of India."

In response, Hindenburg said Adani was trying to take the focus away from substantive issues and was stoking a "nationalist narrative" instead.

But, "the patriotic outcry is not entirely unfounded," noted said Steno Research.

The selloff in Adani shares — which topped $110 billion in two weeks — spilled over into the broader Indian markets. The benchmark Sensex and Nifty 50 indices dipping lower, which is prompting concerns about corporate governance and debt in the country — this could also have wider implications.

"The Adani Group — with investments in ports, roads, rail, airports, and power — is now a crucial vehicle for India's economic ambitions under PM Narendra Modi Combined with Adani's vast debt intake, some commentators are fearing that the Hindenburg report is threatening the wider Indian economy," added Steno Research in its February 3 report.

On its part, the Adani Group has been troubleshooting hard. On January 29, it released a 413-page report defending itself against Hindenburg's allegation — just three days after saying it was exploring potential legal action against the short seller.