(Bloomberg) -- MSCI Inc. is reviewing the amount of Adani Group-linked shares freely tradable in public markets, after receiving investor feedback on the eligibility of the embattled Indian conglomerate’s securities in its indexes.  

“MSCI has determined that the characteristics of certain investors have sufficient uncertainty that they should no longer be designated as free float pursuant to our methodology,” the index provider said in a statement dated Wednesday. “This determination has triggered a free float review of the Adani Group securities.” 

MSCI said it will announce and implement any resultant changes affecting calculations of the so-called free float and market capitalization of the Adani group stocks when releasing its February index review scheduled Thursday.  

Any decision by MSCI to cut its assessment of the number of Adani shares considered freely tradable or even remove the stocks from its indexes will likely trigger a selloff in the group’s stocks after a nascent rebound. The review also directs market attention back to a key allegation from US short-seller Hindenburg Research that offshore shell companies and funds tied to the Adani Group comprise many of the largest “public”, or non-insider, holders of Adani stock. 

“This is unmitigated bad news for the Adani Group companies and a lot of the gains made over the last couple of days could be wiped out today,” Brian Freitas, an analyst at Smartkarma, wrote in a note. “There will be BIG passive selling.”

According to Freitas, all Adani stocks could escape deletion at the February review. However, the sharp declines in stock prices over recent days could result in deletions at the May review, he said.

Billionaire Gautam Adani’s companies have suffered a stock meltdown that at one point erased $117 billion in market value after Hindenburg issued a report accusing accounting fraud and market manipulation, allegations it has furiously denied. The selloff has eased in the last two days after the tycoon and his family pre-paid some borrowings and a port operator unit pledged to improve its debt ratio. 

Eight of the 10 group stocks are part of the MSCI India Index, tracked by the $4.6 billion iShares MSCI India Exchange-Traded Fund. They held a combined 4.3% weighting in the measure as of end January, with flagship Adani Enterprises Ltd. at 1.2%.

According to Bloomberg Intelligence, foreign funds remain the biggest shareholders, owning 50-80% of freely traded Adani group stocks in public markets.  

Abhilash Pagaria, analyst with Nuvama Wealth Management Ltd., estimates that if MSCI reduces the float of Adani Enterprises by 25%, it could see a selloff of about $110 million, which is 25% of its current position in the index.

“The most impacted stocks will be higher weighted names in the index,” Pagaria said.

(Adds data and comments from Nuvama Wealth Management in 10th paragraph.)

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