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Signage of Adani Group in Mumbai, India, on Friday, Jan. 27, 2023. Shares of Adani Groups companies have lost more than $30 billion in market value in less than two sessions, as a selloff sparked by US short seller Hindenburg Researchs scathing report deepened on Friday.
Adani’s electric utility service and city gas distribution units may drop out of MSCI Inc.’s India gauge this month, potentially spurring a $500-million selloff by passive funds, according to Smartkarma.
MSCI is revising the amount of shares considered freely tradable in the public market for the two companies, with the results to be announced later this week. It’s likely that the two companies will fail to meet the minimum threshold after the review, according to Brian Freitas, an analyst with independent research platform Smartkarma.
The MSCI review was first mooted in February, shortly after US short-seller Hindenburg Research claimed that offshore shell companies and funds tied to the Adani Group comprise many of the largest “public,” or non-insider, holders of the shares. Adani has since been battling the short-seller report, which also includes accusations of stock manipulation and accounting fraud. The Adani Group has repeatedly refuted the Hindenburg report.
Freitas sees the unit’s shares as overvalued and estimates “passive trackers will need to sell $500 million across both stocks” if excluded. While most institutional investors – especially domestic funds – have stayed away, retail investors bought these shares during January to March while equities related to the group witnessed an epic meltdown on the Hindenburg report, he added.
As index funds sell, individual investors can buy shares, “though they are unlikely to absorb all the passive selling,” Freitas said. Shares in the two units plunged by their daily 5% limit on Monday.
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