Shares of Adani Transmission and Adani Total Gas tumbled as much as 5% on Friday after index provider Morgan Stanley Capital International (MSCI) said it would exclude these two Adani Group stocks from its standard index with effect from June 1, 2023. MSCI said that Adani Transmission, Adani Total Gas, along with Indus Towers will be removed from the MSCI India Standard Index, as part of its quarterly index review.

“These two securities will no longer be eligible for inclusion in the MSCI Global Investable Market Indexes (GIMI) as the companies will not meet the relevant free float-adjusted market capitalisation requirements,” MSCI said in a release on May 11.

As a result, Adani Total Gas and Adani Transmission will be deleted from the MSCI Global Investable Market Indexes (GIMI), as well as the related MSCI Factor, MSCI ESG, MSCI Thematic and MSCI Capped Indexes as of the close of May 31, 2023, it said.

However, MSCI has made no changes in the inclusion status of six Adani group securities - Adani Enterprises, ACC, Adani Green Energy, Adani Ports and SEZ, Adani Power, and Ambuja Cements in the May 2023 index review. These stocks will continue to remain in the MSCI GIMI, while results of the May 2023 Index Review for the MSCI Factor, MSCI ESG, MSCI Thematic, and MSCI Capped Indexes will be announced on May 19, 2023.

Weighed down by the development, Adani Transmission shares declined as much as 5% to hit an intraday low of ₹871.15 on the BSE, while Adani Total Gas shares were locked in lower circuit limit of 5% at ₹812.60. Both the stocks are subject to 5% up and down price limit on the BSE and the NSE.

Barring ACC, all other Adani Group stocks were under stress, with Adani Enterprises, the flagship company of Gautam Adani-led conglomerate, Adani Ports and SEZ, and Adani Power down over 1%.  While Adani Green Energy fell nearly 2%, Ambuja Cements, Adani Wilmar, and NDTV slipped up to 1%. Bucking the trend, ACC shares rose nearly 2%.

On May 5, 2023, MSCI had said that the Foreign Inclusion Factor (FIF) changes for Adani Total Gas and Adani Transmission will be implemented in its quarterly index review.

“Subsequent to our announcement of the FIF calculation treatment of Adani Group securities for the February 2023 Index Review, MSCI received feedback from market participants on significant potential replicability issues arising from the price limit mechanism being triggered for the affected securities. If the lower price limit were reached for Adani Total Gas and/or Adani Transmission on May 31, 2023, the reduced trading liquidity and volumes would likely result in significant difficulty in implementing the announced index changes at the official index security closing prices,” it said in the report.

“Therefore, pursuant to MSCI's Index Policies (June 2022), MSCI exceptionally will analyse the price evolution for these two securities after the close of May 31, 2023. If Adani Total Gas or Adani Transmission trade at the lower price limit for at least 5 minutes cumulatively during this day, MSCI will delete these securities at the lowest system price as of the close of May 31, 2023 (effective June 01, 2023). Otherwise, MSCI will use the official closing prices, as per the MSCI Index Calculation methodology. MSCI will make an announcement confirming the price used for deleting Adani Total Gas and Adani Transmission after the close of May 31, 2023,” it added.

Earlier in February this year, MSCI had cut the free float designations of four Gautam Adani-controlled securities - Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC, which had an impact on their index weightage. The action was taken after market participants raised concerns about their eligibility for the MSCI Global Investable Market Indexes following a report by U.S.-based Hindenburg Research, which alleged that key listed Adani firms took substantial debt, including pledging shares of inflated stock for loans. The conglomerate, however, refuted all allegations in a detailed 413-page response to Hindenburg’s report.

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