Global index provider MSCI has dropped Adani Transmission and Adani Total Gas from its India index—a move that will result in selling worth Rs 3,200 crore ($390 million) in these two counters by exchange traded funds (ETFs). The change will become effective from May 31.
Interestingly, MSCI has said if these two Adani group stocks get locked in their lower trading limit for a cumulative 5 minutes on May 31, the deletion will take place at zero value. If not, the index provider will use the official closing price.
On Friday, shares of Adani Transmission closed at Rs 885, down 3.5 per cent over the previous day’s close, while those of Adani Total Gas declined 4.3 per cent to end at Rs 818.
The deletion of these two stocks from the MSCI India index comes on the back of a reduction in their free float market cap by the index provide. In February, MSCI had announced that it is re-designating free float of four Adani group stocks following feedback from market participants in the wake of allegations made by US-based Hindenburg Research on January 24.
Besides Adani Total Gas and Adani Transmission, the free float was also cut for flagship Adani Enterprises and ACC in February. Meanwhile, status quo was maintained on Adani Ports & SEZ (APSEZ), Ambuja Cements, Adani Green Energy (AGEL) and Adani Power. Two other listed group firms — Adani Wilmar and NDTV — are not a part of any MSCI indices. The float reduction of Adani Total Gas and Adani Transmission, however, was postponed as these stocks were continuously hitting lower circuits which could have led to “replicability issues”.
On May 6, MSCI announced it will lower the free float of Adani Total Gas and Adani Transmission to 14 per cent and 10 per cent, respectively, from 25 per cent.
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Following this announcement, analysts had forecasted the removal of Adani Transmission from the MSCI index as on the lower float, it would have failed to meet the minimum market cap threshold required to continue in the index. They had forecasted that Adani Total Gas would just about meet the threshold.
Both the stocks could remain under pressure in the run up to their deletion.
Insight provider Brian Freitas of Periscope Analytics, who publishes on Smartkarma, forecasts selling to the tune of Rs 1,535 crore ($187 million) in Adani Total Gas and Rs 1,666 crore ($203 million) in Adani Transmission. Domestic brokerages Nuvama and IIFL too project a similar quantum of selling in Adani Transmission and Adani Total Gas on account of their expulsion from the MSCI India index.
