MSCI reviews Adani stocks: What is free-float in shares?
2 min read . Updated: 09 Feb 2023, 12:02 PM IST
Premium- MSCI calculates free float-adjusted market-capitalization for each security. The free float-adjusted m-cap is used to calculate the weights of the securities in the MSCI indexes
MSCI on February 9 announced that it is reviewing the free-float status of Adani group securities on the back of some concerns from various market participants.
"MSCI has received feedback from a range of market participants concerning the eligibility and free float determination of specific securities associated with the Adani Group for the MSCI Global Investable Market Indexes (GIMI)," it said in a statement.
So, what is free-float?
MSCI calculates free float-adjusted market-capitalization for each security. Free float-adjusted market-capitalization (m-cap) technically is a method to calculate m-cap of shares that are readily available in the market. It is calculated by multiplying an equity's share price to number of shares available in the market. This method leaves out the inactive shares or locked-in shares such as promoter shares, government shares or shares held by insiders.
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MSCI calculates free-float m-cap on parallel lines. The process of free float-adjusting m-cap involves defining and estimating the free float available to foreign investors for each security, as explained on the MSCI website. The free float-adjusted m-cap is used to calculate the weights of the securities in the MSCI indexes.
The global investment research firm takes inputs from various market participants such as analysts, industry experts, official company contacts to arrive at an estimation of free float. The estimation is based solely on publicly available shareholder information, according to information on MSCI website.
“MSCI defines the free float of a security as the proportion of shares outstanding that is deemed to be available for purchase in the public equity markets by international investors," said the MSCI website.
MSCI is an investment research firm that compiles indices for global markets across segments - equities, real estate, fixed income, etc. Many funds and investment firms around the world rely on data by MSCI to make investment decisions for their clients.
What does it mean for the Adani group stocks?
“The review of free-float of Adani Group stocks by MSCI would result in adjustments to the weightings of these stocks in the MSCI Global Investable Market Indexes (GIMI). If MSCI lowers the weightings, it may increase the selling pressure on Adani Group stocks, as some ETFs and index funds which use MSCI as the benchmark may resort to selling in order to adjust their portfolios," said Manish Chowdhury, Head of Research at Stoxbox.
"We feel that most of the brunt of the review would be stocks other than Ambuja Cements and ACC as these were recently acquired and free float should ideally not be an issue with these two stocks," he added.
