Global index provider MSCI has sought feedback from its subscribers, including passive trackers and sell-side analysts, on the Adani Group and its associated securities amid the recent price volatility in its shares.
The index provider said on Saturday it is aware of the reports recently published regarding the Adani Group and is closely monitoring publicly available information regarding the situation and the factors that may impact the eligibility of those relevant securities for the MSCI Global Investable Market Indexes.
Shares of Adani Group companies slid 5-20% on Friday, with several stocks hitting the lower circuit, after a report by US-based Hindenburg Research triggered a selloff.
The bloodbath erased over Rs 4 trillion in the group’s combined market capitalisation in the last two trading sessions.
At present, there are eight Adani Group and associates companies that are constituents of MSCI Standard Index. The cumulative weight of all these stocks in the index is 5.75%, according to Nuvama Alternative & Quantitative Research. As per its assumption of passive tracking, the current cumulative value of these eight names is $3.5 billion based on closing prices on January 27.
The feedback may not necessarily translate into any specific action by the index provider. However, if the volatility continues and the common feedback from participants is towards exclusion, the index provider can exclude these stocks with a prior announcement.
The index provider can reduce the weight of Adani Group shares by half in case they get feedback that free float in the shares should be considered lower, said experts. At current market price, the half float could lead to cumulative outflows of $1.5 billion, estimates suggest.
If the index provider intends to exclude the stocks and few of the names continue to trade at a lower circuit with no liquidity, the index provider can postpone their exclusion until enough liquidity is available. In the worst case scenario, if stocks trade at lower circuits, the index provider can delete specific stocks at ‘zero value’.
The index provider deleted all Russian stocks at “zero value” from the MSCI Standard Index in March last year, deeming it uninvestable in the aftermath of the Russia-Ukraine war.
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