GQG Partners' sale of shares in Adani Energy Solutions added unexpected supply to the market during MSCI's rebalancing auction, overwhelming demand from passive funds and contributing to a roughly 10% decline in the stock, according to a report by the Economic Times.

The transaction also affected hedge funds that had positioned themselves for index-driven buying tied to the rebalancing. GQG's sale disrupted that trade by releasing substantially more shares into the market than some traders had anticipated.

Hedge funds routinely build positions around index rebalancing events, aiming to profit from the predictable demand that passive funds must generate when a stock's weight in an index changes. Such trades depend on the scale of index-driven buying being broadly anticipated; when a large seller injects shares beyond the expected passive demand, the arbitrage can quickly turn unprofitable.

Approximately $569 million worth of shares changed hands, according to the report. By the end of August, GQG's stake in Adani Energy Solutions had fallen to 3.46%.

GQG, an Australia-based asset manager, has been a significant investor in Adani Group companies since early 2024, when it purchased stakes in several group firms. Its holdings in Adani companies have drawn attention as an indicator of foreign institutional sentiment toward the group.

MSCI index rebalancing events typically prompt passive funds tracking the indexes to buy or sell shares to match new index weightings, and closing auctions tied to such rebalancings often see concentrated trading volume.

Source: Economic Times Markets