On November 7, shares of Adani Energy Solutions dropped over 9% as investors reacted to news that the stock would not be included in the MSCI Global Standard Index following the latest review. This outcome came as a surprise to many investors who had anticipated the stock’s inclusion, boosting Adani Energy's performance. MSCI explained its decision, citing a lack of confidence in the stock’s free float, or the proportion of shares available for public trading, as the main factor for holding back the stock’s inclusion.

At 10:40 am, Adani Energy Solutions’ share price was down by 9.13%, trading at ₹978 per share, bringing the market capitalization of this Adani Group company to approximately ₹1.18 lakh crore.

The index review resulted in the addition of stocks such as BSE, Voltas, Alkem Laboratories, Kalyan Jewellers, and Oberoi Realty to the MSCI Global Standard Index, effective from November 25. Following this rejig, India is projected to see a net foreign institutional investor (FII) inflow of approximately $2.5 billion.

Implications of MSCI’s Exclusion Decision for Adani Energy Solutions

MSCI’s decision not to include Adani Energy Solutions due to unresolved questions about its free float raised investor concerns, leading to a sell-off in Adani’s shares. Free float levels are a critical metric for MSCI index inclusion, as they reflect the liquidity and accessibility of shares for global investors. When MSCI does not have high confidence in a stock’s free float, it impacts the stock’s attractiveness for index-linked funds and limits potential FII inflows.

While Adani Energy Solutions reported robust financial performance in its latest earnings report, with a net profit surge of 172% year-on-year, the market’s response underscores the importance of MSCI inclusion in boosting stock visibility and investor interest.

Impact on Indian Stocks Included in MSCI

Other Indian companies have gained from the MSCI review:

• Voltas is anticipated to attract the highest inflows among the new inclusions, projected at over $300 million.
• BSE Limited may see inflows of approximately $260 million.
• Kalyan Jewellers, Oberoi Realty, and Alkem Laboratories are expected to attract $241 million, $215 million, and $201 million in inflows, respectively.

These changes will increase the number of Indian stocks in the MSCI Standard Index to 156, reinforcing India’s standing in the global market.

Adani Energy Solutions’ Recent Financial Performance

Despite the setback with MSCI, Adani Energy Solutions, formerly Adani Transmission, recently reported a strong financial performance for the September quarter. Key highlights from the report include:

• Net Profit: The company’s consolidated profit stood at ₹773.4 crore, marking a 172% year-on-year increase from ₹284.1 crore in the same quarter last year.
• Revenue Growth: Revenue surged by 85% to ₹6,813.7 crore, demonstrating the company’s robust growth trajectory.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 31%, reaching ₹1,891 crore.

As one of India’s largest private-sector power transmission firms, Adani Energy Solutions operates across 14 states, providing services in power transmission, power distribution, smart metering, and cooling solutions. The company’s impressive growth in revenue and net profit reflects its expanding footprint in the power infrastructure sector.

Market Expectations and Future Outlook

The market response to Adani Energy Solutions’ MSCI exclusion shows the impact that global index standards have on investor sentiment, particularly regarding large-cap stocks within influential conglomerates like the Adani Group. Inclusion in global indices like MSCI can elevate a stock’s status, increase liquidity, and attract passive fund flows, making it a highly anticipated milestone for companies.

While Adani Energy Solutions missed this opportunity, the stock’s performance in future reviews will likely hinge on improvements in transparency and free float metrics, addressing MSCI’s concerns. With its recent earnings demonstrating strong operational growth, the company has solid fundamentals to support its case for future inclusion in MSCI’s indices.

Conclusion

Adani Energy Solutions' 9% fall is a reminder of the substantial role index inclusion plays in stock valuations, particularly for emerging market stocks. With MSCI awaiting further clarification on free float, the focus for Adani Energy Solutions will be on aligning with global standards to attract international investment. Meanwhile, the positive additions to MSCI’s index this quarter underscore India’s attractiveness to foreign investors, with an estimated $2.5 billion in FII inflows expected by November 25.

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