Global index provider MSCI mulls not including stocks under ASM in indices

Market participants complain about stringent trading measures on some frontline stocks

Global index provider MSCI is considering a proposal to make securities under the Additional Surveillance Measure (ASM) ineligible to be part of its indices, said people in the know. The move has been triggered by the recent rout in Adani Group stocks, after which some fund managers had troubles buying and selling shares of firms that were moved to the ASM framework by the National Stock Exchange (NSE), they said.

“It came as a surprise when stocks that are part of the main Nifty50 index as well as derivatives segment got added to the ASM list. Several money managers are finding it challenging to exit some stocks which are part of MSCI index but are still subject to stringent 5 per cent circuit filters. Market participants want the global index compiler to address this issue. One solution could be to consider some ASM categories as ineligible so that the market has more clarity,” said a fund manager who oversees passive funds based on both domestic as well as global benchmarks. 

The exclusion of stocks under the ASM framework could impact several large companies that are currently part of this list and result in millions of dollars of passive outflows.

However, market watchers say such a step has to be applied prospectively and not on stocks that are already part of the list.

A query sent to MSCI on this issue went unanswered.

At present, Adani Green Energy, Adani Transmission, and Adani Total Gas are on the long-term ASM list, while Adani Enterprises is on the short-term list. Last week, Adani Ports & SEZ and Ambuja Cements were removed from the short-term list.

In almost every global jurisdiction, MSCI has a segment of stocks that are considered ineligible for index inclusions.

At present, securities that are part of BSE’s ‘Z’ group and S+ framework are not permitted for inclusion in the MSCI index. The Z group comprises companies that fail to comply with listing regulations or resolve investor complaints. Meanwhile, the S+ framework is an enhanced monitoring mechanism for stocks that witness unusual price rise that’s not commensurate with their fundamentals. The ASM framework was introduced by the NSE to “enhance market integrity and safeguard.” ASM is invoked for stocks based on parameters like price and volume variation and volatility.

Within the ASM framework, there are various sub-categories, like price bands and margin requirements. Market watchers say some of the more stringent segments under the ASM could be excluded by MSCI.

“We have been asked (a few times) if MSCI could add the graded surveillance measures (GSM) and long-term ASM to the ineligible boards. Currently, all the ineligible boards for other markets are based on fundamental or governance metrics. The ASM tag in India is based on price and volume movements for the most part, though client concentration does play a part as well. We think it is unlikely that the ASM framework will be added to the list of ineligible boards, though there is always a possibility that it could be,” said analyst Brian Freitas of Periscope Analytics who publishes on Smartkarma.