MSCI delays changes in cut of two Adani companies weightage to May

The MSCI will apply a special treatment to all of Adani Group's associated securities in the MSCI Equity Indexes starting from the February 2023 index review Image: Biswarup Ganguly/Pacific Press/LightRocket via Getty Images 
Index provider MSCI has delayed implementing changes in the foreign inclusion factor (FIF), thereby reduction in the weightage of two Adani companies in the global MSCI Global Standard index. Now, the cut in weightage of the two Adani companies (Adani Transmission and Adani Total Gas) will be effective from May, and not as previously announced as closing trade of February 28.
 
“In the light of potential replicability issues due to the impact from price limit mechanisms in specific securities associated with the Adani Group, the MSCI will postpone the implementation of such previously announced updates to the FIFs for the below securities to the May 2023 index review. The reversal of the updates to these two securities in the February 2023 index review will be reflected in the MSCI index product files starting from February 16,” the MSCI said in an official statement.
 

Share prices of Adani Total Gas and Adani Transmission have been severely impacted among all group companies. Shares of Adani Total Gas have been stuck in lower circuit from February 2, falling around 70 percent in this year so far. Similarly, Adani Transmission stock has also been into the lower circuit for last few days, slipping nearly 60 percent since January.
 
The MSCI will apply a special treatment to all of Adani Group's associated securities in the MSCI Equity Indexes starting from the February 2023 index review. Accordingly, the MSCI will not implement any changes (additions, deletions, constraint factor changes) in non-market capitalisation weighted indexes and custom indexes such as the MSCI Factor, ESG, thematic and capped indexes for any of the other Adani Group companies: ACC, Adani Enterprises, Adani Green Energy, Adani Ports, Adani Power, Adani Total Gas , Adani Transmission and Ambuja Cements.

Also read: Inside the shaken house of Adani
 
It added that until otherwise announced, the MSCI will review the treatment of non-neutral corporate events for the affected securities on a case-by-case basis and potentially defer their implementation. “The treatment of any such non-neutral corporate event would be announced to all clients with advance notice through regular Index announcements. For the avoidance of doubt, MSCI will continue implementing any neutral corporate events including ones requiring application of a Price Adjustment Factor (PAF),” it said.

Earlier, the index provider had announced cut in the weightage of four Adani group companies in the MSCI Global Standard index to be effective from closing of February 28.  Adani Enterprises, Adani Transmission, Adani Total Gas and ACC have seen a reduction of weightage in the index by 0.02 to 0.3 basis points. That would roughly work out to an outflow of $428 million, according to estimates by Abhilash Pagaria, analyst, Nuvama Alternative & Quantitative Research. “The MSCI has also changed the FIF in a few names and the major downward revision has been seen in Adani Transmission, Adani Total Gas and Adani Enterprises. This will lead to meaningful outflows in these names,” says Pagaria.

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It is estimated that Adani Enterprises and Adani Transmission may see an outflow of $161 million each by a sale of average 6.9 million and 9.6 million shares respectively on the index. Adani Total Gas may potentially face a sell-off of 6.9 million shares resulting in a drain-out of $110 million while ACC may see a cut of 0.5 million shares and sale of $12 million.
 
Typically, foreign passive index funds allocate money to the stocks depending on their weightage and constituents, hence a reduction in the weightage results in a direct outflow of funds from those stocks.