MSCI to remove two Adani stocks from index, move may hit FII money

Shares of Adani Total Gas and Adani Transmission have slumped 78 percent and 66 percent respectively since the beginning of this year after a report by US-based Hindenburg Research, questioning the group's financial health and disclosures, led to a free fall of all its stocks

By Nasrin Sultana

Published: May 12, 2023 04:24:46 PM IST

Updated: May 12, 2023 04:42:47 PM IST

Adani Transmission and Adani Total Gas will be completely removed from the MSCI Global Standard index. Image: Shutterstock

Following a massive sell-off, two Adani group stocks will be completely removed from the MSCI Global Standard index as part of the index provider’s review and rebalancing announced on Friday. As the two companies, Adani Transmission and Adani Total Gas, do not meet the relevant free float-adjusted market capitalisation requirements, both will be deleted from the Global Standard index, MSCI says.

Subsequently, both the stocks will also be knocked off from other related indices such as MSCI Global Investable Market Indexes (GIMI), MSCI Factor, MSCI ESG, MSCI Thematic and MSCI Capped Indexes. The changes will be implemented on June 1.

As MSCI Global Standard index is tracked by passive index funds, both Adani Total Gas and Adani Transmission may see a net outflow of $387 million, according to estimates by Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research. Adani Total Gas may see a passive net foreign institutional investors (FII) money outflow of $186 million while Adani Transmission may face sell-off of $201 million.

Shares of Adani Total Gas and Adani Transmission slumped 78 percent and 66 percent respectively since the beginning of this year after a report by US-based Hindenburg Research, questioning its financial health and disclosures, led to a free fall of all group stocks. Shares of Adani Total Gas and Adani Transmission have slipped 79 percent each from their all-time highs of Rs 3,892.50 hit on January 23 this year and Rs 4,090.50 touched on September 16, 2022, respectively. Both the stocks have fallen around 5 percent on Friday.

“Based on the currently available information, Adani Total Gas and Adani Transmission are subject to 5 percent up and down price limit. The official price band is made available by the National Stock Exchange on a daily basis,” MSCI says.

Also read: MSCI delays changes in cut of two Adani companies weightage to May

The index provider said that after its announcement of the foreign inclusion factor (FIF) calculation treatment of Adani Group stocks for the February index review, MSCI received feedback from market participants on significant potential replicability issues arising from the price limit mechanism being triggered for the affected securities. “If the lower price limit were reached for Adani Total Gas and/or Adani Transmission on May 31, 2023, the reduced trading liquidity and volumes would likely result in significant difficulty in implementing the announced index changes at the official index security closing prices,” it explains. MSCI will exceptionally analyse price movements of the two Adani stocks closing of May 31.

Other Adani group stocks such as Adani Enterprise, Adani Green Energy, Adani Ports, Adani Power, ACC and Ambuja Cements will have no change in the index.

India’s FII money hit?

MSCI has, meanwhile, made a few other changes in the indices. It has added three stocks—Max Healthcare, Hindustan Aeronautics and Sona BLW Precision Forgings. Besides two Adani group stocks, it will also remove Indus Tower from the index.

“As per our preliminary calculations India could receive net passive foreign flow of $600-700 million,” Pagaria adds.

Stockwise, Max Healthcare may see an inflow of $295 million, Hindustan Aeronautics $195 million and Sona BLW Precision Forgings $175 million. Removal of Indus Tower from the index may result in a sell-off of shares worth $84 million.

Also read: Will MSCI weightage rejig trigger further sell-off in Adani companies?

MSCI has also added weightage in 15 stocks, Kotak Mahindra Bank, Maruti Suzuki India, Oil and Natural Gas Corp (ONGC), Ultratech Cement, Interglobe Aviation, Zomato, NTPC, Power Grid Corporation, Siemens India, Mahindra and Mahindra, SBI Cards and Payment, Cipla, TVS Motors, Samvardhana Motherson and Yes Bank.

It has cut weightage in 18 stocks including Reliance Industries, Infosys, ICICI Bank, JSW Steel, HDFC, Tata Consultancy, Hindalco, Tech Mahindra, Divis’s Lab, Dr Reddy’s, Hindustan Unilever, Shree Cement, Axis Bank, BPCL, Bajaj Finance, HPCL, Mpahsis and Avenue Supermarkets.