📰Adani Energy Gets Downgraded

Three stories on Indian markets that you can't miss.

March 10, 2025

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Good evening, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

  • Fitch has revised its outlook on Adani Energy to negative,

  • Investors are increasingly positioning themselves for a rally in Indian bonds,

  • and The cleantech race between India and China is heating up,

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Adani Energy Gets Downgraded.

Fitch has revised its outlook on Adani Energy to negative, raising concerns that the ongoing DOJ investigation into the Adani Group could expose weaknesses in the company’s corporate governance. The rating agency warned that adverse findings from the probe could trigger a downgrade of Adani Energy’s rating, which is currently at BBB-, just one notch above junk status.  

The probe alleges that Adani Group and its top executives were involved in a scheme to pay over $250 million (₹21.8 billion) in bribes to Indian government officials to secure solar energy contracts. The group has denied the allegations, calling them baseless and politically motivated. Fitch noted that it will closely monitor the investigation for any evidence of governance lapses, internal control weaknesses, or financial distress that could impact the firm’s liquidity and funding flexibility.  

Some improvements for Adani: In a separate decision, Fitch removed Adani Electricity Mumbai from its negative rating watch but cautioned that the DOJ probe could still put pressure on the company’s financial standing. Despite these concerns, the rating agency acknowledged that the immediate risks associated with Adani Group’s liquidity and funding requirements have eased.  

The allegations come at a time when the Adani Group is already under scrutiny for other controversies, including accusations of stock manipulation and overpricing coal imports. These developments have weighed heavily on investor confidence, with foreign funds pulling $15 billion (₹1.3 trillion) from Indian markets in recent months. Following Fitch’s announcement, Adani Energy’s dollar bond due in 2036 dropped to $84, its lowest mark in March, signaling growing investor unease. 

Indian Bonds Should Rise Upwards.

Investors are increasingly positioning themselves for a rally in Indian bonds, expecting the RBI to continue cutting interest rates to boost economic growth. With bond yields already on a downward trajectory, market analysts predict further declines in the coming months, signaling a favorable environment for both government and corporate borrowers.  

The 10-year bond yield, currently at 6.69 percent, is projected to drop to 6.4 percent by June. Trust Mutual Fund offers an even more bullish outlook: a yield as low as 6.25 percent by December. This optimism follows the RBI’s first rate cut in five years last month, with market pricing suggesting another 25 basis point reduction in April, potentially followed by at least one more cut later in 2025.  

Demand side: In addition to anticipated rate cuts, several other factors are bolstering expectations for a bond market rally. Falling US Treasury yields, a decline in net government borrowing, and the RBI’s bond purchase programs are expected to inject liquidity into the financial system, keeping yields under pressure. Even a modest increase in demand from banks, insurance companies, and pension funds could result in demand outpacing supply, further driving yields lower. Indian 10-year yields have already dropped by 18 basis points since their January peak of 6.87 percent, with traders anticipating an extended rally through 2025. 

Supply-side impact: India’s borrowing plan for the upcoming fiscal year further supports the bond market outlook. While gross bond sales are projected at $171 billion (₹14.8 trillion) — slightly higher than the current FY — net borrowings are expected to be marginally lower. There are also planned debt purchases exceeding $23 billion (₹2 trillion). At the same time, foreign inflows will likely slow in debt markets since India’s bond inclusion for JPM has matured at this point.

Economic implications: A decline in benchmark yields holds significant economic implications. Lower borrowing costs will ease the financial burden on the government and enable the corporate sector to raise funds at more affordable rates — an essential factor in sustaining India’s ambitious infrastructure expansion plans. This is especially critical as the nation’s economic growth slows to a four-year low, facing external challenges such as tariffs and global market risk-off sentiment. The economy is projected to grow at 6.5 percent, short of the 8 percent pace required to achieve Modi’s goal of making India developed by 2047. With inflation cooling — February’s consumer price index is expected to dip below the RBI’s 4 percent target — the central bank is gaining more room to prioritize growth.

Why China Will Prevail Over India in Cleantech.

While India’s cleantech is catching up to China, China will ultimately prevail. Here’s why.

Chinese advantages: China’s early and sustained investment in clean energy has given it an unrivaled advantage. The country leads in solar photovoltaics (PV), wind energy, battery technology, and EVs. China holds a 97 percent share of global solar PV wafer production and controls 60 percent of the wind foundation market. This dominance is backed by an integrated supply chain that allows China to manufacture cleantech products at lower costs while maintaining high efficiency and quality.  

The country has also made massive strides in the EV market. Chinese companies such as BYD and CATL have become global leaders making the country the largest EV manufacturer and exporter. Cost advantages and strong government subsidies have fueled its expansion, allowing it to flood the market with affordable and efficient clean energy products.  

Since 2023, Chinese companies have invested over $100 billion (₹8.7 trillion) in clean energy projects abroad to counter trade restrictions from the U.S. and Europe. Even as Western nations push for supply chain diversification, China continues to solidify its position as the world’s leading cleantech powerhouse.  

What is India doing? Domestic manufacturing is starting to be scaled up. The government’s PLI scheme has helped reduce solar PV manufacturing costs by up to 24 percent, making India more competitive on the global stage. In 2023, India invested $68 billion in clean energy, marking a 40 percent increase from the previous 7-year average. Nearly 50 percent of this investment went into low-emission power generation, primarily solar PV. The country has also introduced policies to accelerate hydrogen production and battery storage capacity, further strengthening its position in cleantech.  

Additionally, India is benefiting from Western efforts to reduce reliance on Chinese imports. The U.S. and EU have enacted tariffs and trade restrictions on Chinese cleantech products, creating new opportunities for Indian manufacturers. By 2028, S&P Global predicts India could become the second-largest solar PV manufacturing hub after China, giving it a crucial role in the global supply chain.  

A few hurdles: The country remains heavily dependent on China for critical inputs such as wafers and polysilicon. While India has made advancements in battery manufacturing, self-sufficiency by 2030 is uncertain. The country’s wind energy infrastructure is also more suited for onshore projects, whereas China dominates the growing offshore wind market. 

One of the most pressing concerns is India’s rising energy demand, which is expected to be the highest in the world by 2050. This rapid growth puts immense pressure on the country’s power grid, which still relies on imported fossil fuels like crude oil and natural gas. Even if Western manufacturing moves to India, they will still have to collaborate with China to grow.

Another uncertainty for India’s cleantech industry is global trade policies. While Western nations are seeking to diversify supply chains, they are also prioritizing domestic reindustrialization. Solar PV and battery manufacturers may face increased competition in international markets. Furthermore, global oversupply of clean energy technologies, such as electrolyzers for hydrogen production, could make it difficult for Indian manufacturers to remain competitive. While India is projected to export more electrolyzers by 2030, stiff competition will drive prices down, limiting profitability and growth.  

A silver lining. India still has a unique opportunity to carve out its own space in the global clean energy transition. By targeting specific segments of the supply chain — wind turbine components, battery manufacturing, and solar PV production — India can position itself as a low-cost alternative to non-Chinese manufacturers. Additionally, India’s strong government support, increasing foreign investments, and shifting global trade dynamics could help it capture a larger share of the cleantech market.

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Gupshup.

Macro

  • The RBI has run into the holy trinity problem of economics. The trinity states that no bank can control currencies, set rates independently, and allow capital to move freely across borders. Many banks set rates and allow free capital movement, but do not set currency controls. India has seen massive outflows requiring large liquidity injections due to limiting the rupee’s depreciation earlier this year. 

  • India is likely to cut GST and finish up tax slabs. The revenue neutral rate (amount of rates that have to change to match GST collection) is now at 11.4 percent compared to 15.8 when GST was introduced in 2017. Essentially, GST rates can come down as that collection rate comes down. FM Sitharaman announced these plans at an Economic Times event.

Equities

Alts

Policy

  • Ex-Deputy Governor Acharya sees tariffs as a good thing to eliminate red tape. Acharya sees tariffs as driving India to increase competition by eliminating trade barriers. India currently has a 10 percent differential on average tariffs between itself and the US, which would lead to high reciprocal tariffs. India is looking to cut tariffs which would likely hurt Indian firms in the short term but boost the economy in the longer end. 

  • Trump says India is ready to make deeper tariff cuts. This comes after Commerce Minister Piyush Goyal was meeting with US aides last week, though his office has not commented on Trump’s interpretation.  

See you Tuesday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.