MUMBAI  - Crony capitalism is alive and well in India, at least in the minds of investors. Companies linked to Anil Ambani and Gautam Adani surged in value after exit polls indicated Narendra Modi’s ruling party was coasting to an easy victory. Both tycoons hail from the prime minister’s home state and are considered close to him. The market reaction suggests it will be hard to change perceptions.

Indebted companies in heavily regulated industries tend to experience stock rallies when investors perceive friendly authorities coming to power. The almost $2 billion Adani Enterprises, whose shares rose 30% on Monday and outpaced sector peers and broader indices, was among those that also benefited stock-wise five years ago when the Hindu-nationalist government swept to power.

It should have been different this time. Modi has taken steps to curb the country’s moguls. For example, telecom and infrastructure companies must now bid for permits through more open auctions. The Indian government is trying to bring beer baron Vijay Mallya home to face fraud charges. Anil Ambani’s own Reliance Communications is going through the radical new bankruptcy process implemented in 2016.

Although the financial elite in Mumbai are keenly aware of the changing policies under Modi, the notion might not have trickled down to smaller investors. The latest reaction effectively says institutions, including the courts and public-sector banks, which account for two-thirds of lending, can still be influenced.

Some of the share-price gains may be attributable to the favourable election outcome in Australia over the weekend, as well as some simple relief. The main Indian opposition Congress party had alleged corruption at both Adani’s and Ambani’s empires. Both group companies, and the government, have denied wrongdoing on several occasions.

Monday’s stock increases are significant because it is important for Modi to change how India is regarded, both around the world and at home. To attract more, and new, sources of foreign investment, and to stamp out dishonest domestic dealings and get ordinary Indians to pay their taxes at home will require reshaping opinions if there is to be any hope of making the economy more efficient.

CONTEXT NEWS

- Shares of Adani Power, Adani Enterprises, Adani Green Energy and Adani Gas– companies related to Indian tycoon Gautam Adani – gained as much as 21% on May 20, a day after exit polls pointed to an easy win for Prime Minister Narendra Modi’s Bharatiya Janata Party.

- Similarly, shares of companies backed by Anil Ambani – Reliance Capital, Reliance Infrastructure and Reliance Power – increased as much as 14%.

- The Nifty 50 index rose 3.3% and the Nifty Midcap 50 gained 4%.

(Editing by Jeffrey Goldfarb and Sharon Lam)

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