Global index provider MSCI has removed two Adani Group stocks from its India equity benchmark, in a move analysts said could spur an investor outflow of about $400mn and complicate plans for a share sale by the expanding Indian conglomerate.
The latest setback for the industrial group owned by Indian billionaire Gautam Adani comes after months of grappling with allegations of fraud and share price manipulation by short seller Hindenburg Research, which at one point wiped more than $150bn off the market value of Adani’s listed companies. .
The allegations, which Adani denies, prompted further investigations into how many companies were freely traded from index providers. MSCI said in a statement on Friday that it will drop Adani Total Gas and Adani Transmission from its India Domestic Index at the end of the month.
The removal of the two listed companies from the MSCI index adds to the challenges facing Adani Group, which has struggled to build investor confidence following the short seller’s report and was forced to slow its previously sluggish pace of acquisitions and spending.
Brian Freitas, an independent analyst, said, “The company has done little, if anything, to provide a different narrative and show things are not the way Hindenburg said they are.” Adani published a 413-page rebuttal of Hindenburg’s allegations in late January.
MSCI blamed the failure of companies to meet its minimum free-float requirements, triggering an outflow of about $400mn, as investors tracking the benchmark cut their shareholdings, Freitas said.
Two Adani Group stocks were delisted by MSCI in February.
Adani Total Gas and Adani Transmission account for about 0.6 percent of MSCI’s India Domestic Index, which tracks the 115 largest and most liquid stocks traded in the country with a combined market capitalization of $1.08tn. Adani Group’s other six stocks will remain in the index, with a total combined weighting of about 1.8 percent of the stock benchmark after the cut.
MSCI’s announcement came even after three Adani companies, including Adani Transmission, told stock exchanges they were considering fresh share sales, without giving details. Their board will meet on Saturday to take a decision.
Last week, Adani Enterprises, which includes the group’s coal business and airport business, reported that profit after tax more than doubled in the first quarter. It is one of Adani’s companies looking to raise funds.
“Given that Adani Transmission may also be looking to raise funds soon, this makes it more difficult because people are going to sell $200 million now. [of that stock] Towards the end of this month,” Freitas said.
