The steep selloff in shares of Adani Group companies in the past two days has raised questions over whether these stocks will continue to be part of the MSCI Global indices, given the relatively high cumulative weight of the group in the index.
In a statement on Saturday, MSCI said it has sought feedback from market participants on the steps to be taken.
“MSCI is closely monitoring publicly available information regarding the situation and the factors that may impact the eligibility of those relevant securities for the MSCI Global Investable Market Indexes,” the global index aggregator said.
According to an analysis by Nuvama Alternative and Quantitative Research on the possible actions MSCI can take, one of them could be reducing the weight of stocks by half.
If the weight is reduced, it could result in cumulative outflows of $1.5 billion, according to the research firm.
Currently, eight Adani group and associated companies are part of the MSCI Standard index and their cumulative weight is 5.75%. As of Friday, the cumulative value is $3.5 billion.
In the worst-case scenario, the index provider can delete specific stocks at “zero value”, Nuvama said, adding that such an action was taken by MSCI in March 2022 by deleting Russian equity at “zero value” as it was uninvestable.
If the volatility in stocks continues next week and the common feedback from participants is towards exclusion, then MSCI can exclude these stocks with a prior announcement, Nuvama said.
However, if stock prices stabilise on Monday, then MSCI may not take any action and the stocks will continue to be part of the index.
If the index provider intends to exclude the stocks and a few of the names continue to trade at lower circuits with no liquidity, then MSCI can postpone their exclusion until there is enough liquidity visible on the counter.
The massive selloff in Adani Group stocks triggered by a negative report issued by the American research firm and whistleblower Hindenburg Research eroded Rs 4 lakh crore of investors’ wealth in just 2 days.
Hindenburg Research alleged the group of corporate misgovernance, stock price manipulation and high leverage.
The diversified conglomerate, led by Gautam Adani has threatened the American short-seller with remedial and punitive action in both US and Indian courts.
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