Adani  stocks  Dive As MSCI Finalizes Free Float Review

MSCI is the world’s leading provider of indices across equities, real estate, fixed income, ESG and others. Investors and fund managers around the world rely on MSCI products to allocate capital. This gives equities included in MSCI indices a measure of validation around the world.

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The outcome of the evaluation will be announced at 4am on Friday. Market experts predict that the outflows could range from several million dollars to more than half a billion, depending on the modifications, which will become effective at the end of May.

The term ‘free float’ here refers to the portion of a company’s shares accessible to international buyers. On 27 January, MSCI sought feedback from market participants in response to allegations made by US short-seller Hindenburg Research, which claimed that certain Mauritian funds were used as parking entities for Adani shares. MSCI has since reviewed these issues.

“MSCI has determined that the characteristics of certain investors have sufficient uncertainty that they should no longer be designated as free float pursuant to our methodology. This determination has triggered a free float review of the Adani Group securities. The pro forma results of the February Index Review, including these changes, are scheduled to be announced this week on 9 February 2023," the index provider said.

A query to the spokesperson for Adani Group remained unanswered until press time. Adani Group has denied the Hindenburg allegations, terming them “maliciously mischievous."

A fund manager requesting anonymity said that MSCI had set “an example for local index managers to review the free float of Adani stocks."

Hindenburg’s report alleging accounting fraud and stock price manipulation against the Indian conglomerate has caused the 10 listed group stocks to shed almost half of their value and founder Gautam Adani to cede the eighth slot on the Forbes billionaire list in exchange for the 18th since it surfaced on 24 January.

“Following our 27 January 2023 announcement regarding Adani Group, MSCI has received feedback from a range of market participants concerning the eligibility and free float determination of specific securities associated with Adani Group for the MSCI Global Investable Market Indexes (GIMI)," the index provider added.

MSCI defines the free float of security as the proportion of shares outstanding that are considered available for purchase in the public equity markets by international investors.

“A significant weighting cut will result in the (group) stocks correcting more," said Rajesh Palviya, vice-president (technical and derivatives), Axis Securities. “If it’s insignificant, the market will absorb the selling.

Asked what impact a higher cut could have on the broader market, Nilesh Shah, MD, Kotak AMC, said, “Markets in the short term are voting machines, driven by sentiment and flows. In the long term, they are like weighing machines, where fundamentals play out. Gravity works in real life as well as in markets. Price and fundamentals cannot stay away from each other for long."

According to market sources, Adani Enterprises (0.71%) enjoys the highest weight on the MSCI Standard Index, with a holding value of $430 million, followed by Adani Total Gas (0.55% and $330 million), Adani Transmission (0.48% and $290 million), Adani Ports (0.4% and $240 million), Adani Green (0.37% and $220 million) and Adani Power (0.18% and $100 million). This information could not be independently verified by Mint.

After adding ₹60,022 crore in market cap in the two days through Wednesday, the listed Adani stocks’ m-cap fell ₹58,596 crore to ₹9.83 trillion. The losses were led by Adani Enterprises (-10.7%) and Ambuja Cements (-7%).