Nov 23, 2023
Adani shares slip on MSCI review
Shares of Adani Group companies came under renewed pressure on Thursday after a two-day recovery as global index provider MSCI said it would review the status of stocks linked to the group that are freely available for purchase by overseas investors and their eligibility in its indices.
This will likely result in weight reductions of Adani Group shares and selling from passive funds. The affected securities will be further reviewed as part of the Full Country Float Review in May, which could lead to some index deletions and more passive selling, according to experts.
Also read: Markets Wrap – Thu, 9 Feb ‘23: Stocks gain, rupee flat; Asia, Europe markets, Gold, Crude, Crypto updates
Flagship Adani Enterprises slid 10.7% to Rs 1,927 on the bourses on Thursday, after rallying 35% in the previous two days.
Ambuja Cements was down nearly 7% while ACC and Adani Ports & SEZ ended 2.9% lower each. Adani Transmission, Adani Green Energy, Adani Total Gas and Adani Power were down 5% each. Adani Wilmar was the only group company to end higher at 5%.
“The most impacted stocks will be higher weighted names in the index. As the free float will reduce, so a few names will face a risk of getting deleted from the index in forthcoming reviews,” said Abhilash Pagaria, head, Nuvama Alternative & Quant Research.
For instance, if MSCI were to reduce its float by 25% for Adani Enterprises, it could result in an outflow of $110 million, Pagaria said.
“The impact will be big in terms of days of average daily volumes and huge in terms of delivery volume,” said analyst Brian Freitas of Periscope Analytics, who publishes on Smartkarma. “If MSCI uses the shareholding pattern from June 2022 and December 2021 and adds back the holdings from other ‘friendly’ holders that held over 1% of the shares outstanding then (but do not now), there will be more selling on the stocks.”
The surge in shares of some of the group companies in the previous two sessions came after the group announced its decision to pre-pay $1.11 billion of loans on shares ahead of maturity in 2024 and assured that it would prepay all share-backed financing. Some of the group’s recent earnings reports also boosted investor confidence.
However, a news report by the Financial Times on Thursday indicated that the prepayment of the $1.1 billion share-backed loan last week happened after a margin call of more than $500 million and was designed to avoid further damage to investor confidence in the group.
Also read: Mutual Fund SIP inflows hit record high of Rs 13,856 crore in January; number of accounts rises to 6.21 crore
French firm TotalEnergies on Wednesday said it had put its multi-billion hydrogen investment with Adani Group on hold.
On Tuesday, global rating agency Moody’s said banks’ exposure to Adani Group is less than 1% of their total loans. However, risks for banks can increase if Adani becomes more reliant on bank loans, given that the group’s access to funding from international markets can be curtailed because of heightened risk perception.
Valuation expert Aswath Damodaran in his blog on Saturday said the fair price of Adani Enterprises, with upbeat assumptions on revenue growth and operating margins, and without factoring any of the Hindenburg accusations of fraud and malfeasance, should be about `945 per share. This is 51% below the current price.
More Details