GQG Partners’ sale of a large block of Adani Energy Solutions shares during India’s closing auction disrupted a trade that hedge funds had positioned for ahead of an MSCI index reshuffle, according to a report by Bloomberg citing unnamed people familiar with the matter.
The unexpected selling pressure overwhelmed demand from passive investors on 31 August, helping drive Adani Energy shares down 10% in their sharpest one-day decline in around seven months. About $569m worth of the stock changed hands during the session.
Several hedge funds had built positions ahead of the MSCI rebalancing, anticipating that index-tracking funds would provide a pool of buyers once the changes took effect. Such positioning around index changes is a well-established strategy among event-driven and quantitative investors.
GQG’s disposal added considerably more stock to the market than some traders had expected, undermining those positions and contributing to the sharp decline.
The MSCI changes were expected to generate significant buying from passive funds. Nuvama Alternative & Quantitative Research estimated that trackers would need to invest around $310m in Adani Energy following its addition to the MSCI Standard Index.
Adani Enterprises was also expected to benefit from roughly $202m of passive inflows after its index weighting was increased.
The scale of GQG’s selling meant the anticipated demand failed to absorb the additional supply as smoothly as traders had expected.
Bloomberg data showed that a single entity sold approximately 21.92 million Adani Energy shares at 1,417 rupees apiece in Monday’s closing auction, although it did not identify the seller.
An exchange filing published on Thursday confirmed that GQG held a 3.46% stake in Adani Energy as of 31 August, down from 5.1% in June 2023. The filing said the previously disclosed holding had changed through multiple purchases and sales, but did not disclose the number of shares sold in the latest transactions.
GQG reportedly declined to comment, while the Adani Group reportedly did not respond to a request for comment.
The MSCI rebalance was the first major index event conducted under India’s new closing-auction mechanism, adding another layer of complexity for hedge funds attempting to position ahead of expected passive flows.
