'Reduced risk from Adani exposure': Adani Group investor GQG Partners gets thumbs up from JPMorgan; here's why

GQG Partners reported net inflows of $20.2 billion in calendar year 2024, almost doubling from $10.2 billion from the previous year. In a statement to the ASX on Friday, the investment manager disclosed that it closed the year with $153 billion in funds under management (FUM).

Brokerage firm JP Morgan in a research report said that GQG Partners FY24 exceeded its expectations primarily due to lower-than-expected expense growth. While overall revenues slightly missed projections due to lower performance fees, management fees surpassed expectations. This was despite a 0.5%% shortfall in average FUM compared to forecasts, as fee margins were 1.5% higher than anticipated, driven by a favorable product mix with an increased proportion of wholesale FUM. 

"We reiterate our OW rating. with a revised Dec-25 PT of AS2.90, reflecting the earnings upgrade and reduced risk from Adani exposure following recent developments involving Trump's office stopping the DOJ's enforcement actions against foreign bribery," the brokerage firm said. 

It added: "After challenges in flows and performance in the last two months of CY24, GQG reported very strong flows and performance in the month of Jan-25. Adjusting for all this has resulted in a 6.3% and 7.7% upgrade to our NPAT for FY25 and FY26, respectively."

Earlier this week, in an executive order signed by President Donald Trump on Monday, enforcement of the federal law known as the Foreign Corrupt Practices Act (FCPA) has been temporarily paused. This law criminalizes bribing foreign officials by US businesses. The FCPA is the same law under which industrialist Gautam Adani was charged.

During the signing of the order, President Trump stated that the FCPA puts American companies at a disadvantage internationally. As a result, he instructed the newly confirmed Attorney General, Pam Bondi, to cease all actions related to the FCPA immediately. This includes halting prosecutions of American individuals and companies who have been accused by the Department of Justice (DoJ) of bribing foreign government officials in order to secure business opportunities in other countries.

The White House has revealed plans to conduct a comprehensive review of all historical and ongoing FCPA-related processes. Following the issuance of updated, more lenient enforcement protocols by Attorney General Pam Bondi, all forthcoming FCPA inquiries and actions will adhere to these revised guidelines and necessitate authorization from the Attorney General.

If American citizens implicated in the case are exonerated, it may result in potential relief for Gautam Adani and his colleagues.

The case

The US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) brought simultaneous charges against Indian mogul Gautam Adani, his nephew Sagar Adani, business partner Cyril Cabanes of Azure Power Global Ltd, and various other senior executives in connection with an alleged $250 million bribery scheme in violation of the Foreign Corrupt Practices Act (FCPA).

According to the SEC, Adani is accused of deceiving US investors by providing false information about the robust anti-corruption measures in place while engaging in corrupt practices. The alleged misconduct took place during a September 2021 bond offering by Adani Green, which raised $750 million, with $175 million coming from US investors.

Following charges from a New York grand jury for allegedly bribing Indian officials to secure lucrative solar energy contracts, arrest warrants were issued for both Adani and his nephew Sagar Adani.

The Adani Group has denied the accusations, dismissing them as unfounded.

In November 2024, Adani Green Energy stated that Gautam Adani, Sagar Adani, and Vineet Jaain have not faced any FCPA violations thus far.

During that time, GQG Partners reaffirmed its trust in Adani group companies despite the accusations made by US prosecutors. GQG's investment in Adani Group companies amounted to $9.7 billion, accounting for approximately 6.1% of its overall assets. 

“We recognise the distinction between the allegations against individuals and the companies. We believe the fundamentals of the companies we are invested in remain sound,” said GQG Partners in a statement explaining its stance after the charges in the US.
 
“We believe this level of exposure is manageable, even given the volatility in Adani group stocks,” GQG said, noting that it had positive returns on its investments in Adani companies.

In March 2023, amid the peak of the Hindenburg crisis, GQG made the decision to start investing in Adani stocks. At that time, GQG made investments in five companies within the Adani group, such as Adani Enterprises, Adani Ports & SEZ, Adani Green, Adani Energy Solutions, and Ambuja Cements. Following this, the firm also increased its investments in Adani Power and Adani Total Gas. The stake held by the investment manager in the listed companies of the Adani group typically falls between 3% and 5%.