MSCI drops Adani Transmission and Adani Total Gas from India index

Stocks to be assigned 'zero' value if they get locked in lower circuits on May 31

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 passive sellers. The change will become effective from May 31.

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.

Shares of Adani Transmission on Thursday closed at Rs 917, up 3 per cent over its previous day’s close, while those of Adani Total Gas rose 2.3 per cent to end at Rs 855.

The deletion of these two stocks from the MSCI India index follows reduction in their free float following feedback from market participants in February in the wake of allegations made by US-based Hindenburg Research on January 24.

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.

Following the announcement, analysts had forecast 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 forecast that Adani Total Gas would just about meet the threshold.

The deletion of these two stocks, as a result, will put downward pressure on their stock prices due to the massive selling by passive funds that will get triggered.

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.

Meanwhile, brokerage firm Nuvama projects a similar quantum of selling in Adani Transmission ($201 million) and Adani Total Gas ($186 million).

Indus Towers too, has been removed from the MSCI India index. As a result, it will see selling to the tune of Rs 665 crore ($81 million) by index funds.

Meanwhile, Max Healthcare Institute, Hindustan Aeronautics and Sona BLW Precision Forgings have got added to the index, which will result in passive inflows of around Rs 2,020 crore, Rs 3,010 crore and Rs 1,800 crore, respectively.