Signs are rapidly emerging that investors in Indian stocks are shrugging off Adani Group’s woes. Local fund managers are bullish on the outlook for the coming year, and overseas money is starting to flow back into the $3.1 trillion equity market.

A key stock benchmark climbed back to record highs after retreating for a second straight month in January, when US short-seller Hindenburg Research released a scathing report on billionaire Gautam Adani’s empire, shaking sentiment.

The slump of 10 Adani companies, which has now wiped more than $130 billion off their combined market capitalisation, could end up being a brief stumbling block to India’s growth story as the government aims to become the fastest-expanding of the world’s major economies.

Overseas investors appear less concerned than in the early days of Adani’s downfall. Foreign funds added to Indian stocks for six straight sessions through Thursday, the longest streak since November, according to the latest exchange data compiled by Bloomberg.

While the Adani Group has grabbed headlines in recent weeks, its many businesses spanning everything from ports to power make up only a tiny slice of India’s economy.

The group’s total capital spending over the next two years will be around $12 billion at best, according to Bloomberg calculations, even if it manages to maintain last fiscal year’s levels amid widespread problems. That’s only about 0.3% of the potential gross domestic product of India’s $3.47 trillion economy.

Not all are optimistic. Some investors worry that corporate governance issues surrounding Adani could continue to weigh on Indian stocks and exacerbate other negative factors, including stretched valuations and a shift of global funds to China after the country reopens.

Adani, which holds no shares in the 30-constituents Sensex, is within 4% of an all-time high hit in December and outperformed the MSCI Emerging Markets index by 89% on earnings-based valuations. The Nifty 50, which houses two Adani group companies, is within 5% of its peak.

Meanwhile, rising corporate earnings are seen as supporting India’s long-term valuations. Analysts estimate earnings per share in the MSCI India index will increase 14.1% this year, better than most major markets, according to data compiled by Bloomberg Intelligence.

The optimism from institutional fund managers reflects the growing ranks of retail investors, who have become a force to be reckoned with in the wake of the investment boom sparked by the pandemic. The number of retail investor accounts in India has ballooned from 30 million to about 110 million in the past two years.