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Two Adani group stocks decline by daily limit as MSCI trims weight

Adani Transmission, Adani Total Gas face deletion from MSCI India index, spurring over Rs 4,000-cr sell-off by passive funds

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Analysts said the reduction of free float could eventually lead to the removal of these two Adani Group stocks from the MSCI India Index, triggering a sell-off of more than Rs 4,000 crore by passive trackers

Samie Modak Mumbai

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Shares of Adani Transmission and Adani Total Gas plunged by their daily 5 per cent limit on Monday after global index provider Morgan Stanley Capital International (MSCI) said it would reduce their weights in its indices, following a review of the public float.

Shares of Adani Total Gas closed at Rs 872.4 and Adani Transmission Rs 949.3 — both down 5 per cent and the only sellers on the counter.

Market players said Adani’s electric utility service and city gas distribution unit stocks would continue to hit the lower circuit spawned by changes by MSCI.

On Saturday, MSCI said it would lower the free float of Adani Total Gas and Adani Transmission to 14 per cent and 10 per cent, respectively, from 25 per cent.
 

Analysts said the reduction of free float could eventually lead to the removal of these two Adani Group stocks from the MSCI India Index, triggering a sell-off of more than Rs 4,000 crore by passive trackers.

“Adani Transmission is a near-certain deletion from the MSCI India Index in the May Quarterly Comprehensive Index Review (QCIR),” said Brian Freitas, an analyst with independent research platform Smartkarma.

He said due to the reduced free float, the company would fail to meet the minimum free-float market capitalisation required for a company to continue to be part of the MSCI Index. Meanwhile, it would be a touch-and-go for Adani Total Gas.

“This is a slightly trickier case, given there was a marginal increase in float from September 2022 through March 2023,” said Freitas, a New Zealand-based expert with Periscope Analytics who has extensively researched Adani Group.

At a 14-per cent free float, Adani Total will be deleted from the MSCI India Index this month. If the gauge assigns a higher free float due to the acquisition of stake by GQG Partners from the promoter group, it may dodge erasure.

“Given the definitive statement from MSCI that the foreign inclusion factor (FIF) will be lowered from 0.25 to 0.1 for Adani Transmission and from 0.25 to 0.14 for Adani Total Gas in the May QCIR, it is unlikely any changes to FIF over September 2022 through March 2023 quarters will make any difference. But we cannot entirely rule out the possibility, especially when GQG Partners has bought a large stake in some Adani Group companies,” said Freitas.

Nonetheless, there would be a lot of stock to sell from passive MSCI trackers, he added.

In February, MSCI had deferred lowering the free float as these stocks were unceasingly hitting the lower circuit which could have led to a potential crisis of replication.

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First Published: May 08 2023 | 8:30 PM IST

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