Japanese Banks Double Down on Adani: A Contrarian Play in India's Infrastructure Boom

The U.S. Department of Justice's (DOJ) indictment of the Adani Group in November 2024 has sent shockwaves through global markets, yet Japanese banks like Mizuho, Sumitomo Mitsui, and Mitsubishi UFJ Financial Group (MUFG) remain defiantly bullish. Their unwavering support for Adani's infrastructure and green energy projects amid the legal storm offers a compelling case study in strategic risk assessment—and a contrarian opportunity in one of Asia's fastest-growing economies.

The Calculus of Confidence: Why Japanese Banks Stay Committed

Japanese lenders are betting on two pillars of Adani's resilience: cash-generative assets and geopolitical leverage.

First, Adani's portfolio of ports, airports, and renewable energy projects generates steady cash flows. For instance, Adani Total Gas's $375 million financing framework (secured with backing from Mizuho and MUFG in late 2024) is funding city gas distribution networks serving 200 million people—a project aligned with India's goal of boosting natural gas usage to 15% of its energy mix by 2030.

Second, Adani's close ties to India's government—evident in its leadership of Prime Minister Modi's infrastructure agenda—insulate it from short-term shocks. Japanese banks view prolonged U.S. legal battles as a manageable risk, not an existential threat. Their risk frameworks, honed during Southeast Asia's 1997 financial crisis, prioritize long-term asset value over transient headlines.

In contrast, Western banks like Barclays and Jefferies have retreated, citing reputational risks. This divergence creates a valuation gap: Adani's assets are undervalued in Western eyes but remain attractive to institutions willing to endure scrutiny for India's growth story.

Contrarian Investment Thesis: Riding the Infrastructure Wave

The Adani Group's projects are central to India's $1.3 trillion infrastructure push through 2025, targeting everything from smart cities to green hydrogen plants. Japanese banks' continued financing unlocks opportunities for investors in two key areas:

1. Green Energy Plays:
   Adani Green Energy's solar and wind farms, backed by Japanese financing, are critical to India's renewable targets. Despite stock volatility, the company's adjusted EBITDA rose 8.2% in FY2024 amid record revenues. For investors, this signals operational resilience.

2. Strategic Partnerships:
   Japanese banks' alignment with Adani isn't just about debt—it's about co-investing in India's future. MUFG's $315 million commitment to Adani Total Gas isn't just a loan; it's a stake in India's energy transition. Investors might consider ETFs like the India Infrastructure Development Fund (IIDF) or directly allocate to Adani's listed entities.

Risks and Considerations

The DOJ's case remains unresolved, and credit downgrades by agencies like S&P (which cut Adani's outlook to “negative”) add uncertainty. However, show minimal impact, suggesting their risk appetite is well-calibrated.

Investment Advice

• Long-Term Hold: Investors with a 3–5 year horizon should consider Adani Enterprises (NSE: ADANIENT), which has outperformed peers despite the scandal.
• Diversify via Banks: MUFG (NYSE: MTU) and Sumitomo Mitsui (NYSE: SMFG) offer indirect exposure to India's growth while benefiting from strong capital ratios and risk management.
• Avoid Short-Term Trading: Volatility around legal milestones (e.g., document service completion) could test nerves, but fundamentals remain intact.

Conclusion: A Test of Patience, Rewarded in Time

Japanese banks' stance reflects a deep understanding of India's trajectory—a nation where infrastructure bottlenecks stifle GDP growth and where green energy is a national priority. By focusing on Adani's cash flows and geopolitical clout, these institutions are playing a high-stakes game of strategic patience. For investors willing to follow their lead, the payoff could be substantial in a decade where Asia's growth drives global capital.

As the old adage goes: “Be fearful when others are greedy, and greedy when others are fearful.” In this case, fear is priced into Adani's assets—and greed may yet be rewarded.