MSCI reviews free float status of Adani Group stocks: What could be the impact?

Adani group stocks

MSCI (Morgan Stanley Capital International) said on February 9 that certain investors in Adani Group securities should no longer be designated as free float, and it is reviewing this status. The changes will be announced later in the day.

"MSCI has received feedback from a range of market participants concerning the eligibility and free float determination of specific securities associated with the Adani Group for the MSCI Global Investable Market Indexes (GIMI)," it said in an announcement.

MSCI defines free float as the proportion of shares outstanding available for purchase in the public equity markets by international investors.

"MSCI has determined that the characteristics of certain investors have sufficient uncertainty that they should no longer be designated as free float pursuant to our methodology," MSCI explained as the reason behind triggering a review of these securities.

The stocks that are a part of the MSCI India index are: Adani Enterprises (71 basis points: $430 million), Adani Ports (40 basis points: $240 million), Adani Total Gas (55 basis points: $330 million), Adani Green (37 basis points: $220 million), Adani Transmission (48 basis points: $290 million), Adani Power (18 basis points: $100 million), Ambuja (32 basis points: $190 million) and ACC (21 basis points: $125 million).

Adani Wilmar and NDTV are not a part of the index.

Any reduction in these weightages will indicate more selloff from stocks as exchange traded funds and index funds benchmarked to MSCI will rejig their portfolios.

What could be the possible impact?

In a note, Abhilash Pagaria of Nuvama Research writes, "If hypothetically, MSCI reduces the float by 25 percent, then for instance, Adani Enterprises will see outflow of $430 million * 25 percent = $110 million."

He adds, ACC and Ambuja were recently acquired by the Adani group so float concerns for these two stocks should not be a worry.

On January 24, US-based Hindenburg Research accused the Adani group of 'stock manipulation and accounting fraud', following which over $100 billion worth market capitalization has been wiped out for the conglomerate. In a 413-page rebuttal, Adani group said that Hindenburg’s conduct is 'calculated securities fraud' under applicable laws.