2 Adani Group stocks hit lower circuit: How MSCI review may impact amid selloff pressure?

Adani Group stocks were mixed in Friday’s early deals after index provider MSCI said that it has reduced the free floats of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC, though, the remaining companies’ free floats will remain the same. MSCI defines free float as a proportion of shares outstanding that are available to investors for purchase in the public equity markets.

Shares of Adani Total Gas and Adani Transmission hit lower circuit of 5% on the BSE whereas that of ACC Ltd were trading marginally lower. The Group’s flagship firm Adani Enterprises bounced back from day’s low to trade slightly higher at the time of writing the story. The four companies had a combined 0.4% weighting in the MSCI emerging markets index as of January 30. The changes come into effect on March 1, 2023.

“With the recalculation of free float, the passive institutional investors tracking the MSCI EM index have to reallocate capital to avoid the tracking error. The weight of 4 Adani group companies is 0.4pc of the index. There could be a selling over over $500 mn in Adani group companies due to this change,” said Divam Sharma, Founder at Green Portfolio, SEBI Registered Portfolio Management Service Provider.

“Adani group stocks are famous for keeping a very low free float. MSCI’s timing to review the weightage could not be more fitting. There is a possibility of reduction of index weights on Adani group stocks. This indicates a clear outflow through the passive channels and the active funds will rebalance to factor the allocation as well,” said Harsh Thakrar, Assistant professor, Anil Surendra Modi School of Commerce (ASM SOC), NMIMS Mumbai.

The review comes after MSCI sought feedback from market participants on Adani Group’s situation and said it was closely monitoring any information that would prevent the conglomerate’s securities from being eligible for its gauges in the wake of a January 24 report by the US short seller Hindenburg Research that accused the conglomerate of stock manipulation.

“MSCI lowering the weightings may increase the selling pressure on Adani Group stocks, as some ETFs and index funds which use MSCI as the benchmark may resort to selling in order to adjust their portfolios. We feel that most of the brunt of the review would be stocks other than Ambuja Cements and ACC as these were recently acquired and free float should ideally not be an issue with these two stocks,” said Manish Chowdhury, Head of Research at Stoxbox.

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Green Portfolio Team

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