GQG Partners' Adani Energy Share Sale Triggers 10% Stock Drop During MSCI Rebalance

GQG Partners Inc.’s sale of Adani Energy Solutions Ltd. shares during India’s closing auction on Monday overwhelmed demand from passive funds, according to people familiar with the matter, contributing to a 10% slump in the stock on the day.

The unexpected supply also hurt hedge funds that had positioned ahead of the MSCI Inc. index rebalancing on Aug. 31, expecting to sell shares to index-tracking funds, the people said.

Trading around index rebalancing is a common strategy among hedge funds, who often build positions ahead of index changes and look to sell into the expected demand from passive investors when the changes take effect.

The sale by GQG disrupted that trade by adding substantially more shares to the market than some traders had anticipated. The increased supply, together with positions built by hedge funds ahead of the rebalance, contributed to the slump in Adani Energy shares, the steepest in about seven months. About $569 million of the stock changed hands.

A representative for GQG Partners declined to comment, while a spokesperson for the Adani Group didn’t respond to an email seeking comment.

An exchange filing Thursday showed GQG Partners held a 3.46% stake in Adani Energy as of Aug. 31, down from 5.1% in June 2023. The fund said its holding disclosed in June 2023 had undergone “multiple acquisition and sale transactions” over the period.

The latest filing was triggered when the change in GQG’s holding crossed a regulatory disclosure threshold following its Aug. 31 trades. The filing, however, didn’t specify how many shares GQG sold on Monday.

Data compiled by Bloomberg shows a single entity sold about 21.92 million Adani Energy shares at 1,417 rupees apiece in that day’s auction.

Passive trackers were expected to funnel about $310 million into Adani Energy following its inclusion in the MSCI Standard Index, while group flagship Adani Enterprises was estimated to attract about $202 million after its weighting was increased, according to Nuvama Alternative & Quantitative Research.

The MSCI rebalancing was the first major index event conducted under India’s new closing-auction mechanism.

GQG emerged as an important backer of the Adani Group following a 2023 report by former short-seller Hindenburg Research that sparked a selloff in the group’s stocks. The investment firm has since pared holdings in some group companies, including Adani Enterprises and Adani Energy Solutions, via open-market sales.