The recent revelation that two of the Adani Group’s flagship companies, Adani Ports and Special Economic Zone (APSEZ) and Adani Enterprises, are scheduled to be withdrawn from the MSCI Global Standard Index caught investors in the Adani Group, one of India’s largest conglomerates, off guard. Regarding the future prospects of the Adani Group, which has recently been a favourite of the Indian financial markets, this development has generated a lot of doubts and concerns. This article will define the MSCI Global Standard Index, explain why the Adani Group’s equities are being dropped, and discuss the financial repercussions.
The MSCI Global Standard Index is what?
One of the most frequently followed indexes in the world is the MSCI Global Standard Index. It is a benchmark for many investment funds and is used by investors to evaluate the performance of global stocks. The index is created and managed by MSCI Inc., a well-known supplier of tools for supporting investing decisions.
Why are the Stocks of the Adani Group being Struck Off the Index?
A change in the MSCI Global Standard Index’s methodology has resulted in the removal of The Adani Group’s equities. Stocks with a free float-adjusted market capitalization (FFMC) of less than 1% are no longer permitted to be included in the Index under the new regulations. The FFMC is determined by dividing the share price of a firm by the quantity of shares that are available for trading. Adani Ports and Special Economic Zone and Adani Enterprises both have FFMCs that fell below the new standard as of May 2021, at 0.82% and 0.26%, respectively.
What repercussions will this have on the Adani Group’s potential for future growth?
Future prospects for the Adani Group’s growth have been severely harmed by the exclusion of its stocks from the MSCI Global Standard Index. Institutional investors pay close attention to the Index, therefore its elimination could cause a substantial outflow of cash from the impacted stocks. This can result in a decline in share values and make it more challenging for the business to raise money in the future. Additionally, the company’s exposure on the international arena is probably going to decline, which could hurt its capacity to expand outside of India.
What Consequences Do Investors Face?
Ans. The removal of these stocks from the MSCI Global Standard Index is anticipated to have an impact on shareholders of Adani Ports and Special Economic Zone and Adani Enterprises. The withdrawal might decrease interest in the impacted stocks, which would lower share prices. Additionally, institutional investors that follow the Index might be compelled to sell their investments in the afflicted stocks, which could result in a large loss of capital. In other words, investors who own these stocks in their portfolios are likely to suffer as a result of the removal of the stocks from the Index.
What is the expected short-term performance of the stocks of the Adani Group?
Ans, Following its exclusion from the MSCI Global Standard Index, the Adani Group’s stocks are probably going to see a short-term decline in demand. It’s crucial to remember that the impact might just be short-lived. Investors who have positions in these companies and believe in the Adani Group’s long-term growth potential may keep them, which might help offset the fall in demand.
Which companies are listed in MSCI?
Ans. Six Indian firms have just been added to the MSCI global standard index: TVS Motor Co., Varun Beverages, Tube Investments of India, Indian Hotels Co., Bajaj Holdings and Investment, and ABB India. The November revision is effective as of right now, which is Wednesday, November 30, 2022.
What actions could the Adani Group take to lessen the effects?
Ans. The Adani Group can think about raising the free float of the company to lessen the effects of the Index’s elimination.