Indian share market set for Rs 50,000 crore foreign buying; MSCI rejig to open floodgates for funds

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Updated: April 7, 2020 4:09:58 PM

A regulatory change that has paved the way for an increased foreign portfolio investment (FPI) limit in various public listed companies, could help the Indian share markets tap foreign funds worth over Rs 52,000 crore.

foreign portfolio investors invest 23102 crore in februaryMSCI India’s weightage in emerging markets could rise up to 55 basis points to inch up to 8.1% from the current 7.6%.

A regulatory change that has paved the way for an increased foreign portfolio investment (FPI) limit in various public listed companies, could help the Indian share markets tap foreign funds worth over Rs 52,000 crore. With the change in FPI limit, as notified by Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) last week, MSCI (Morgan Stanley Capital Investment) could rebalance India’s weightage on its indexes as soon May 2020, a move that would result in foreing buyers eyeing the opportunity to invest in listed companies in India.

MSCI India’s weightage in emerging markets could rise up to 55 basis points to inch up to 8.1% from the current 7.6%, resulting in passive inflows of over $1.4 billion (about Rs 10,000 crore) and active inflows of $5.7 billion (about Rs 43,000 crore), said a research report by Morgan Stanley. “We estimate MSCI India’s weight in EM to rise by 55 bps and India’s FIF to rise from 0.39 to 0.42. We estimate slightly lower than a third of current constituents will see an increase in their stock weights whenever MSCI considers this particular rebalancing,” the report said.

The change decision to change FPI limit for companies listed in the Indian stock markets came after an announcement, made by the Ministry of Finance in October last year. Higher foreign investment cap for the Indian companies would result in a change in the weightage assigned to MSCI India among emerging markets. However, earlier last week, MSCI announced that it has deferred the decision to rebalance India’s weightage given the lack of company level foreign limit data.

“MSCI will 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. MSCI will therefore maintain the current FOL for Indian companies and will defer changes to the Foreign Inclusion Factors (FIF) resulting from Foreign Ownership Limit and Foreign Room changes as part of the May 2020 Semi-Annual Index Review (SAIR) and Corporate Events,” MSCI said in the press release.

According to Morgan Stanley, the rebalancing on the MSCI index could be “over the next few months”. “Our recent conversations indicate this event is an important catalyst in investors’ 2020 investment strategies,” Morgan Stanley said. With the coronavirus pandemic wreaking havoc across global markets, India has seen Rs 1.10 lakh crore flow out of the Indian equity markets in March alone. With a change in India’s weightage, a number of Indian stocks could witness millions of dollars coming from foreign investors. “The top five beneficiaries of this regime change are L&T, Asian Paints, Bajaj Finance, Nestle and Divis’s Lab – these stocks could see the most increase in their stock weights in the index,” the report said.

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