GQG’s Adani Energy sale disrupts hedge funds’ MSCI rebalancing trade

GQG Partners auctioned a substantial stake in Adani Energy Solutions during India's closing auction, disrupting a trade that hedge funds had anticipated for an upcoming MSCI index adjustment, according to a Bloomberg report. The unexpected selling forced Adani Energy shares down 10% in their most significant one-day drop in nearly seven months.

About $569 million worth of shares changed hands in the session. Hedge funds had built positions ahead of the MSCI rebalancing, expecting index-tracking funds to serve as buyers post-adjustment. GQG's sale outpaced expectations, undermining these positions and contributing to the sharp decline. The MSCI changes were projected to drive significant buying from passive funds.

Nuvama Alternative & Quantitative Research estimated trackers would need to inject around $310 million into Adani Energy following its inclusion in the MSCI Standard Index. Adani Enterprises was also expected to receive roughly $202 million in passive investments due to its increased index weighting. GQG's outsized selling meant the expected demand couldn't absorb the additional supply as anticipated.

Bloomberg data showed a single entity sold approximately 21.92 million shares at 1,417 rupees each in the Monday closing auction, though the seller remained unidentified. An exchange filing confirmed GQG held a 3.46% stake in Adani Energy as of August 31, down from 5.1% in June 2023. The filing stated the original holding had shifted through various purchases and sales but did not disclose the exact number of shares sold in recent transactions.

GQG declined to comment, while the Adani Group did not respond to a request for comment. The MSCI rebalancing was the first major index event under India's new closing-auction mechanism, adding complexity for hedge funds positioning ahead of anticipated passive flows.