Investor Mark Mobius was put off Adani's massive planned share sale because of concerns about the group's debt pile and exposure to political risk, he told CNBC Tuesday.
But he does not believe the fraud accusations that have rocked one of India's biggest conglomerates will have a knock-on effect on the wider Indian market — and in fact he says any publicity could be good for investing.
"When you're in these huge infrastructure projects, particularly if it's outside of India, and, you know, they've been exploring other areas of the world, you get into lots of political risks," Mobius told CNBC's "Capital Connection."
The Adani conglomerate spans ports, airports, mining, cement, power and more.
"The political risk becomes paramount when you have a very big debt pile and you're trying to make money to pay off that debt, and maybe some political event will put up a wrench into the gears so that you're not able to pay back. So that's one of the big problems that I had," Mobius said.
His firm, Mobius Capital Partners, focuses on emerging markets and India is one of its top allocations.
On Jan. 24, U.S.-based short selling firm Hindenburg Research published an explosive report alleging the Adani Group had engaged in "brazen stock manipulation and accounting fraud scheme over the course of decades."
Companies including Adani Enterprises, Adani Transmission, Adani Green Energy, Adani Power and Adani Total Gas have plummeted in value since then, with the group shedding more than $113 billion from its market value. Adani-exposed exchange traded and mutual funds have been hit heavily.
That is despite strong denials of wrongdoing by the firm and its chairman, Gautam Adani, which were detailed in a 413-page report on Jan. 29.
On Feb. 1, Adani called off a fully subscribed $2.5 billion sale of Adani Enterprises shares, citing the stock price movements.
There will now be questions for the Indian government and big banks that funded Adani with loans as scrutiny on the company continues, Mobius told CNBC.
But, he added: "There are lots of terrific companies in India that have excellent corporate governance, that really behave very well in the market. So we have to use the Adani as sort of somewhat of an isolated case."
On the potential fallout, he said, "The Adani companies represent, what, about 6% of the Indian index. It's big, but it's not that significant."
"You can see that the index has not suffered that much."
India's Sensex and Nifty 50 indexes dropped to roughly three-month lows on the news, but have remained broadly resilient.
Analysts at Goldman Sachs, Nomura and HSBC have also said they do not believe there will be a "broader contagion" in Indian markets.
Some investors and analysts have characterized India as a bright spot over the last year as other major economies have suffered from energy market volatility, decades-high inflation and a sharp slowdown in economic growth.
Mobius also told CNBC: "The good news, in my view, is that it calls to attention to the world that India is big. And there are some very big companies in India."
"So the publicity in the international press, in some ways, is beneficial. It wakes up people who have been sleeping, and not looking at India the way they should, as a big country and a very fast-growing country."
Another positive, he said, "is that the allegations will raise questions, and there'll be examination of other companies and corporate governance will probably improve as a result."