InvestorQ : Can you tell me about the major changes that the MSCI is making in the India index and how will it have an impact on the markets?
Arti Chavan made post

Can you tell me about the major changes that the MSCI is making in the India index and how will it have an impact on the markets?

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Rutuja Nigam answered.
3 months ago
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The Morgan Stanley Capital International or the MSCI offers an index to invest in various markets and its weight for India in the overall emerging markets index is used as a benchmark by most of the global investors like index funds and ETFs that invest into India. That why any changes to the India weightage of any changes to stock weights make a big difference to the investment flows into India.

In its latest release, the Global index provider MSCI has confirmed that it will be enhancing the weightage on select stocks. These stocks will include names like Bharti Airtel, Indus Towers or formerly Bharti Infratel, ICICI Lombard and HDFC Life. The MSCI had already mentioned earlier that these stocks would see enhanced weightage.

Now the MSCI has confirmed the actual weights too. It has published that the weightage of Bharti Airtel would increase by 1.27%, Indus Towers by 0.15%, HDFC Life by 0.11% and ICICI Lombard General Insurance by 0.04%. Among other stocks, Piramal Enterprises Limited or PEL could see its weight improve to 0.28% on completion of the MSCI EM index revamp.

It is currently expected that on the date of the balancing i.e. 26-Feb, India would likely get foreign portfolio flows of $700 million into this set of stocks. These would typically be flows coming from passive index funds and ETFs that normally peg themselves to these indices. There are estimates that leading investment institutions have already put out on the likely impact of this shift.

IIFL Alternative Research has projected flows of $525 million into Airtel, $70 million into Indus Towers and $55 million into HDFC Life. Apart from these candidates, ICICI Lombard is expected to get flows of $20 million and PEL will get inflows of $13 million. These flows are critical as they set the direction for passive funds and index ETFs to allocate to India in a big way. These stocks also see advance buying interest ahead of the event.

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