MSCI Blow To 2 Adani Cos

MSCI had deferred the review of the two stocks to May in February, at a time their shares kept hitting the lower circuits every day, making it difficult for investors to exit. Shares of Adani group companies had gone into a free fall after US short-seller Hindenburg Research on 24 January accused the ports to renewable energy group of irregularities and accounting fraud, charges that Adani dismissed as “maliciously mischievous.

This resulted in MSCI deciding to cut the free float designations of four group stocks—flagship Adani Enterprises, ACC, Adani Total Gas and Adani Transmission— reducing their weighting in the relevant MSCI index. However, MSCI decided to defer the review of Adani Total Gas and Adani Transmission to May. Friday’s MSCI decision will prompt passive funds tracking the index to sell these shares.

Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, expects passive funds to sell $201 million worth of shares in Adani Transmission and $186 million in Adani Total Gas when the changes take effect on 31 May.

The index provider runs quarterly and semi-annual reviews where the weights of its constituents are increased or decreased, and stocks are included or excluded, and the indices rebalanced.

The news of the MSCI move hit the stock on Friday, with shares of both companies locked on the 5% lower circuit. Adani Total Gas ended down 4.29% at ₹818.35, while Adani Transmission closed 3.5% lower at ₹884.8. Flagship Adani Enterprises ended 1% lower at ₹1964.70.

MSCI also made prominent changes made to the weights of Kotak Mahindra Bank and Reliance Industries Ltd. The former saw its weight being increased while the latter saw a reduction, which would result in Kotak Bank receiving estimated inflows of $810 million and RIL witnessing outflows of $155 million, according to Pagaria.

Kotak Bank ended flat at ₹1960.6 in a volatile session where the Nifty swung 148.2 points between high and low before closing 0.13% higher at 18314.8. RIL closed up 0.17% at ₹2484.35.