MSCI stays review of Adani firms

The index company will give special treatment to eight Adani stocks in custom indices like non-market cap weighted and ESG starting February.

The reasons for the postponement and special treatment till May’s index review were attributed to the impact of the price ceiling mechanism and possible replication issues due to uncertainty relating to input data for index construction for the group’s shares.

Changes made by MSCI are closely watched by investors as they affect the price of stocks. Any reduction in weightings or exclusions can trigger selling by passive investors as they mimic changes in indices.

However, the impact of MSCI’s most recent measures on Adani Group shares is expected to be short-lived, given that Adani Total and Adani Transmission have been hitting lower circuits almost daily since the release of the Hindenburg Research report on January 24, prompting investors to are unable. To sell their shares due to trading halt due to high volatility according to analysts. “This is only a moratorium, the FIF (foreign inclusion factor) update has not been cancelled, so the impact will be short-lived,” said a market source. It is difficult to exit them, deletion cannot be ruled out in upcoming reviews.” 10 listed stocks of Adani Group saw a decline in investors’ wealth on Thursday 2,553.91 crore against 32,442 crore in the last two sessions, partly due to deferment by MSCI and short-covering in Adani Enterprises, Adani Ports, Ambuja Cements and Adani Wilmar.

However, since January 24, the shares have lost combined 10.55 trillion in market value 8.64 trillion on 16 February. After American short seller Hindenburg released its report alleging accounting fraud and stock price manipulation by group promoters, Adani shares saw extreme volatility, resulting in domestic exchanges halving the daily price limit on some securities and He was placed under Additional Monitoring Measures (ASM). To increase margin from around 30-40% to 100% to curb heavy intraday speculation.

Adani Enterprises has rejected the allegations, terming them “slanderous” and “maliciously mischievous”.

However, on February 8, MSCI said it reviewed the free float position of Adani Enterprises, Adani Total Gas, Adani Transmission and ACC. According to Nuwama Alternative & Quantitative Research, with foreign fund outflows of $428 million effective February 28, these four stocks were underweighted. Free float refers to the proportion of shares freely available for purchase by international investors. On the basis of free float, the stock is weighted. Adani Transmission and Adani Total Gas were then estimated to have an outflow of $255 million.

The shares are traded only in the cash market segment of NSE and BSE, while those of Adani Enterprises and ACC are traded in both cash and derivatives segments.

Due to the Hindenburg effect, the National Stock Exchange and BSE, in consultation with SEBI, have taken additional monitoring measures on some Adani stocks, which have, among others, raised the trading margin to 100% in Adani Total Gas and Adani Transmission and 65% in Adani . Enterprise. Further, the price band of Adani Total Gas and Adani Transmission has been halved to 5% to prevent excessive price volatility.

As a result, even after MSCI’s February 8 review and expected weight cut, these stocks remained locked in the lower circuit for several days, leaving investors unable to sell and exit the counters. In the case of Adani Enterprises too, delivery volumes as a percentage of turnover have been low, indicating heavy speculative activity.