MSCI’s Lifting of Restrictions on Adani Group Stocks

MSCI’s Lifting of Restrictions on Adani Group Stocks

Sub: Eco

Sec: Capital market

• Resumption of Normal Operations:
  • MSCI has lifted restrictions on the treatment of Adani Group stocks during its August 2024 Index Review.
  • Updates include resuming adjustments to the free float status and other metrics for Adani Group securities.
• Background on Restrictions:
  • In February 2023, MSCI halted certain adjustments due to concerns about the free float status of Adani Group stocks.
  • The characteristics of certain investors created enough uncertainty for MSCI to exclude them from the free float calculation.
• Impact on Key Adani Group Stocks:
  • The weightage for Adani Enterprises and Ambuja Cements in the MSCI Standard Index has been reduced as part of the latest review.
  • Other Adani Group stocks like Adani Ports, Adani Green, and Adani Power are also affected by these updates.
• Ongoing Monitoring by MSCI:
  • Despite lifting the restrictions, MSCI emphasized that it will continue to closely monitor Adani Group securities.
  • MSCI remains vigilant regarding any developments related to the free float and will issue further updates if necessary.
• Market Reactions and SEBI’s Response:
  • On 12 August 2024, Adani Group stocks experienced mixed results in the market, with some recovering partially after being hit by a fresh Hindenburg report.
  • The report alleged improper investigations by SEBI into Adani Group firms, but SEBI and its chairperson Madhabi Puri Buch have denied these allegations, confirming proper disclosures were made.

About Free Float: 

Free Float, also known as Public Float, refers to the shares of a company that are publicly traded and not restricted.

Exclusions: It excludes shares held by:

• Promoters
• Government/Strategic Holding
  
• Other locked-in shares that are not available for trading under normal circumstances.

Formula:

• Free Float = (Outstanding Shares – Restricted Shares – Closely Held Shares)
  • Outstanding Shares: Total number of shares held by all shareholders.
  • Restricted Shares: Shares that are not transferable until certain conditions are met, usually held by corporate management.
  • Closely-Held Shares: Shares held for a very long-term, such as those owned by major long-term shareholders and insiders.

Purpose:

• Free Float Methodology is used to provide a more accurate reflection of market movements and the stocks actively available for trading. This methodology has been adopted by many of the world’s major indexes.

MSCI Index:

• MSCI Overview:
  • MSCI stands for Morgan Stanley Capital International.
  • It is an investment research firm that provides stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds.
• Free Float-Adjusted Market Capitalization:
  • MSCI calculates free float-adjusted market capitalization for each security to determine their weights in the MSCI indexes.
  • Calculation: The share price of an equity is multiplied by the number of shares available in the market, excluding the locked-in shares.
• MSCI India Index:
  • Designed to measure the performance of the large and mid-cap segments of the Indian market.
  • Constituents: With 96 constituents, the index covers approximately 85% of the Indian equity universe.
• Review Frequency:
  • The MSCI India Index is reviewed quarterly to ensure accuracy and relevance of the included stocks.