GQG Partners Inc. executed a significant sale of Adani Energy Solutions Ltd. shares during India’s closing auction on Monday, overwhelming demand from passive funds and contributing to a 10% slump in the stock. The unexpected supply disrupted hedge fund strategies that had positioned ahead of the MSCI Inc. index rebalancing on Aug. 31, expecting to sell shares to index-tracking funds. Trading around index rebalancing is a common strategy among hedge funds who build positions anticipating expected demand from passive investors when changes take effect.

The GQG sale added substantially more shares to the market than anticipated, combining with existing fund positions to drive the steepest decline in Adani Energy shares in about seven months. Approximately $569 million of the stock changed hands. Data compiled by Bloomberg indicates a single entity sold about 21.92 million Adani Energy shares at 1,417 rupees apiece in the auction.

Passive trackers were expected to funnel about $310 million into Adani Energy following MSCI inclusion, while Adani Enterprises was estimated to attract $202 million after weighting increases, according to Nuvama Alternative & Quantitative Research. GQG emerged as a key backer of the Adani Group following the 2023 Hindenburg Research report. The investment firm has since pared holdings in group companies via open-market sales.

An exchange filing showed GQG held a 3.46% stake in Adani Energy as of Aug. 31, down from 5.1% in June 2023.