Defying market expectations, the MSCI on Thursday did not add shares of Adani Energy Solutions to its Global Standard Index due to uncertainty over its free float. Following this, the stock crashed 10%.
“As per publicly available disclosures, Adani Energy Solutions has been issued a show-cause notice by the Securities Exchange Board of India (SEBI) for potential wrongful categorisation of shareholding of certain entities,” the global index services provider said while announcing its November review.
“Consequently, in light of the uncertainty regarding its free float, MSCI will not implement any increases in the number of shares, foreign inclusion factor and domestic inclusion factor for Adani Energy Solutions as part of the November 2024 index review until otherwise announced,” the MSCI said.
As per disclosure by Adani Energy Solutions, it has received a SEBI notice in the quarter ended September for alleged wrongful categorisation of shareholding of certain entities as public shareholding. The notice was part of SEBI’s investigation into Adani Group following allegations by US short seller Hindenburg Research.
The global index services provider earlier postponed implementation of changes for other Adani Group stocks as well. However, in August this year, it resumed the implementation of changes.
“MSCI continues to monitor Adani Group and associated securities, including related to free float, and will issue further communication if appropriate,” it said in the latest announcement.
The inclusion of Adani Energy Solutions in the MSCI Global Standard Index was expected to fetch $306-million inflows into the stock from passive funds.
While the stock tumbled 10.4% to close at Rs 963.8, shares of several other Adani Group stocks, too, ended lower on likely negative sentiment and a broader weakness in the market.
MSCI adds five Indian stocks
As part of its November quarterly review, MSCI added five Indian stocks to its Global Standard Index. These are: Alkem Laboratories, BSE, Kalyan Jewellers India, Oberoi Realty and Voltas.
Shares of these companies, barring Alkem Laboratories, rose up to 4% on Thursday despite the selloff in the broader market.
“With five inclusions and no exclusions, the net stock count post-rejig will be 156 for India in the MSCI Standard/EM Index,” said Abhilash Pagaria, head of Nuvama Alternative and Quantitative Research. “With this, India’s representation in the MSCI Emerging Markets Index is set to increase from 19.3% at present to nearly 19.8%. “This increase in weight, in terms of basis points, is the highest among any EM index in this rejig.”
China saw inclusion of four stocks and removal of 20 stocks from the Global Standard Index.
Morgan Stanley-backed index provider also added nine stocks to MSCI India Domestic Index, and 15 to MSCI India Domestic Small Cap Index. It removed 10 stocks from the small cap index, but some of the exclusions were on account of their entry into the other indices.
HDFC Bank’s weight in the Global Standard Indexes has also seen an increase, leading to potential inflows of $1.9 billion.
The overall changes will result in net inflow of $2.5 billion in passive fund flows from foreign investors, with the adjustment slated to take place on November 25.
“At the current moment, China has the highest representation in the MSCI EM Index with weight of 27% and 598 members, compared to India’s 19.3% weight with 151 stocks. There is enormous potential for more additions to happen for India,” Pagaria said.