Global index manager MSCI Inc. will exclude two Adani Group firms from its India gauge, potentially dealing a blow to their stocks that are trying to recover from the rout triggered by a short-seller report earlier this year.
Adani Transmission Ltd. and Adani Total Gas Ltd. will drop out of the India index effective at the close of trading on May 31, according to a statement issued by MSCI on Thursday as a part of its quarterly comprehensive index review. The exclusion follows changes in MSCI’s calculation on the amount of shares considered freely tradable in the public market for the two companies.
The action from the index provider firm comes as billionaire Gautam Adani’s conglomerate is seeking to raise funds in what will be a major test of investor confidence in the group. Allegations of market manipulation and accounting fraud by Hindenburg Research in late January wiped out more than $150 billion from the group’s value at one point. Adani has denied the allegations.
The exclusions should trigger outflows of $186 million for Adani Total Gas and $203 million for Adani Transmission, according to estimates by Brian Freitas, an independent equities analyst who publishes on Smartkarma. MSCI’s decision was “mostly expected. Though the passive selling will keep the two stocks under pressure. Especially Adani Transmission, where there could also be some fundraising.”
The selloff has eased in recent weeks as Adani has been trying to win back the market’s trust with a series of investor roadshows, early debt repayments and plans to scale back its pace of spending on new projects.
READ: Adani Weighs Selling New Stock, First Time Since Hindenburg Rout
MSCI said earlier this month that it will implement weighting cuts for Adani Transmission and Adani Total Gas in its indexes. The reduction was initially announced in February, shortly after Hindenburg’s scathing report on the group, but its implementation was postponed.
READ: Adani Units May Drop Out of MSCI Index on Review, Analyst Says
--With assistance from Filipe Pacheco.
(Adds analyst comment to fourth paragraph.)