FIIs get another reason to buy India shares: FTSE raises India weight in headline indices, ahead of MSCI

Taking note of the increased foreign investment limits for public listed companies in India, FTSE Russell has decided to rejig the investability weighting of its Indian constituents, which will see India’s weightage increase in the headline FTSE global indices. The move could see foreign investors rush to invest in Indian stocks, resulting in healthy inflows for the stock markets. FTSE could soon be joined by MSCI (Morgan Stanley Capital Investment) in changing India’s weightage on its global indices, a move that according to Morgan Stanley research could flood Indian stock markets with more than Rs 52,000 crore.

FTSE will look to change India’s weightage in the June 2020 quarterly review, effective from June 22, said FTSE in a press release. “Indian index constituents, with a headroom adjustment, which are impacted by this update, will have their respective FOL increased in two 50% tranches, subject to the headroom remaining at 20% or above, in accordance with Foreign Ownership Restriction and Minimum Headroom Requirement policy,” FTSE said. The projected change in weightage would see India’s weightage jump to 1.18% in the FTSE Global All Cap index, while the FTSE All World index is projected to see India’s weightage go up to 1.17%. On the emerging market index, India is projected to jump up by 1.43% to increase its weightage to 10.38%. FTSE Emerging All Cap index will see India’s weightage reach 10.56% from the current 9%.

FTSE has invited feedback from index users on the proposed changes, that will also see China’s weightage in the FTSE All World index go over 5.06%, till May 1. The final change in the index will be confirmed by FTSE by May 8. 

The move comes after National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) published the new foreign investment limits for Indian companies, earlier this month. The published change is in accordance with an announcement made by the Ministry of Finance in October 2019. Earlier last month, MSCI had steered clear of changing India’s weightage on its global indices saying, it would “wait for the practical implementation of these changes and the systematic publication of the new sectoral limits applicable to Indian securities before making any changes to the MSCI Indexes.”

Talking to Financial Express Online, Sajiv Bhasin, Director IIFL Securities said, “The bounce-back for India will be imminent considering the fact that the lockdown was very fast. On the macro front, I think India remains overweight on indices.” Bhasin did not pin a number on how much inflows India could witness due to the expected change in the FTSE index, however, he pointed out that FII’s have been buying since yesterday.