Adani rout worsens as MSCI action raises outflow concerns

MSCI has cut the amount of shares freely tradable for four of Adani entities

MUMBAI: Adani Group stocks were mostly lower on Friday after a review by MSCI Inc. spurred concern about passive outflows from shares already reeling from the rout triggered by US short seller Hindenburg Research’s scathing report.

Seven of the conglomerate’s 10 stocks were lower in Mumbai after the global index provider cut the amount of shares it considers freely tradable for four of the companies, a move that will cause their weightings in its indexes to drop.

The MSCI review has directed market attention back to a key allegation by Hindenburg Research: that offshore shell companies and funds tied to the Adani Group comprise many of the largest “public,” or non-insider, holders of Adani shares. The conglomerate has denied all of the short seller’s claims. Adding to the pressure, Norway’s $1.4 trillion sovereign wealth fund on Thursday said it had sold its remaining stake in related companies.

Mumbai-based Nuvama Wealth Management estimates a combined outflow of more than $400 million, as lower MSCI index weightings mean passive funds would need to cut their allocations to these securities.

“It’s hard to tell if the worst is over,” Manish Bhargava, fund manager at Straits Investment Holdings in Singapore. “There are so many layers to Hindenburg’s report. Unlikely that long term institutional investors will return to the name anytime soon. Speculators might.”

The selloff following Hindenburg’s

January 24 report is set to cap a third week, with $119 billion wiped out from the market value of 10 Adani group companies. Still, the pace of declines has slowed this week as Adani stepped up measures to reassure investors and banks by pre-paying loans and pledging to reduce debt ratios.

Adani Enterprises tumbled over 4% on Friday and was the top loser in the Nifty 50 index.

Among the four stocks for which MSCI trimmed its free float assessment, Adani Total Gas Ltd. and Adani Transmission Ltd. were down by their 5% limit on Friday. Flagship Adani Enterprises Ltd. was down 1.2% after slumping 10% earlier, while ACC Ltd. was down less than 1%.

Adani Power Ltd. also fell by the 5% limit. It has done so on all days except one since the selloff began.

“The weighting cut will lead to outflows and further increase the odds of exclusion for Adani Power, Adani Total Gas and Adani Transmission in MSCI’s May review,” Brian Freitas, an analyst who publishes on Smartkarma, said by phone. “Adani Power was already at a high risk of exclusion.”

Separately, shareholder Life Insurance Corporation of India has said it will engage with Adani’s management soon. Meantime, the Supreme Court of India will hear on Friday two public interest litigation pleas related to the Hindenburg report.

Valuations for the group have plunged following the rout. Adani Enterprises is trading at about 51 times forward earnings, down more than a third from a peak valuation in September. Adani Transmission’s multiple has tumbled to 83 times from more than 300 in late 2022.

“The pressure will remain on the stocks,” said Sameer Kalra, founder of Target Investing in Mumbai.

AP The selloff following Hindenburg’s January 24 report has wiped out $119 billion from the market value of 10 Adani group entities.