MSCI lowers free-float designations of 4 Adani group firms; stocks fall up to 10%

Shares of Adani group companies continued to stay under pressure on Friday after index provider Morgan Stanley Capital International (MSCI) cut the free float designations of four Gautam Adani-controlled securities, a move which could impact their index weightage. MSCI has lowered the free floats of Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC, while free floats of remaining companies have been kept unchanged. The changes will be effective from March 1.

Reacting to the news, Adani Enterprises shares declined as much as 10% in early trade on the BSE. While Adani Total Gas and Adani Transmission hit their respective 5% lower circuit limit, ACC fell as much as 2.3%. Among others, Adani Green Energy, Adani Wilmar, Adani Power, and Adani Ports & Special Economic Zone shed up to 5% in the early deals. Ambuja Cements were trading flat with marginal losses.

The four companies - Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC - had a combined 0.4% weightage in the MSCI emerging markets index as of January 30. As per estimates by Nuvama Alternative & Quantitative Research, the changes could lead to total outflows of $428 million from the four Adani group companies. Adani Enterprises could witness outflows of $161 million, Adani Transmission $145 million, Adani Total Gas $110 million, and ACC $12 million, the research firm said.

The action was taken by the MSCI after market participants raised concerns about their eligibility for the MSCI Global Investable Market Indexes following a report by U.S.-based Hindenburg Research, which alleged that key listed Adani firms have taken on substantial debt, including pledging shares of inflated stock for loans. The conglomerate, however, refuted all allegations in a detailed 413-page response to Hindenburg’s report, which failed to soothe investors concerns, resulting in cumulative market value loss of around $110 billion.

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

MSCI said that certain Adani Group investors should no longer be designated as free float. “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,” the index operator says, adding that this determination has triggered a free float review of the Adani Group securities.

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

In a separate development, Norway's sovereign wealth fund has sold its stakes in three Adani Group companies worth over $200 million since the start of the year. The world's largest stock investor, having over $1.35 trillion in assets, had stakes in Adani Total Gas, Adani Ports & SEZ, and Adani Green Energy.