The selloff in Adani stocks deepened as MSCI reduced the amount of shares it considers freely tradable in the public market.
(Bloomberg) — Adani Group stocks capped another week of losses as 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.
Eight of the conglomerate’s 10 stocks fell in Mumbai on Friday 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. Meanwhile, Moody’s Investors Service changed its outlook on Adani Green Energy Ltd. to negative from stable after the close of markets, citing a “large capital spending program and dependence on sponsor support.”
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 its shares. The conglomerate has denied all of the short seller’s claims.
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 turmoil emanating from Hindenburg’s Jan. 24 report capped a third week on Friday, with 10 Adani stocks now having lost $120 billion, or more than half of their market value in the ensuing rout. That said, 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.
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. declined 4.1%, while ACC Ltd. fell almost 2%.
Adani Power Ltd. also fell by the 5% limit. It has done so on all days except one since the rout 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.”
Adding to the pressure on Adani, Norway’s $1.4 trillion sovereign wealth fund on Thursday said it had sold its remaining stake in related companies. Shareholder Life Insurance Corporation of India has said it will engage with Adani’s management soon. Meantime, two public interest litigation pleas related to the Hindenburg report were set to be heard in the Supreme Court of India on Friday.
Valuations for the group have plunged following the rout. Adani Enterprises is trading at about 49 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.
–With assistance from Ashutosh Joshi.
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