MSCI index rejig soon: These shares could see massive fund inflows if India’s weightage increases

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Updated: May 02, 2020 9:54 AM

As market participants patiently await a rebalancing announcement from the MSCI (Morgan Stanley Capital Investment), brokerage and research firms are busy estimating the quantum of fund inflows and the likely changes to weights of stocks in the index.

RIL Rights Issue, Right Issue, What impact of rights issue on company stock, who can invest in rights issue, know everything about rights issueThe likely change in India’s weightage on the MSCI indexes has been aided by the change in FPI limits as notified by the CDSL and NSDL, earlier this month.

As market participants patiently await a rebalancing announcement from the MSCI (Morgan Stanley Capital Investment), brokerage and research firms are busy estimating the quantum of fund inflows and the likely changes to weights of stocks in the index. With the change in India’s weightage on various MSCI indexes, the stocks that could be included in the MSCI India index include — Tata Consumer, Torrent Pharma, Jubilant Food, Biocon, Alkem Lab, and Ipca Labs, said a research report. Benchmark funds could see net inflows to the tune of $246 million if the change is made in the May rebalancing, brokerage and research firm Emkay Global said.

Tata Consumer is expected to be the biggest gainer among the new entrants, with an expected weightage of 0.61% the inflows are estimated at $85 million by Emkay Global. Currently, the stock is trading at Rs 355 per share. Torrent Pharma is the next on the list with an expected weightage of 0.41%, translating to a $57 million investment. Torrent Pharma is trading at Rs 2,445 apiece. Jubilant Food is also expected to see inflows nearing $51 million, according to calculations done by Emkay, putting the expected weightage at 0.36%. The majority of the stocks that the brokerage expects to debut on the MSCI India index are from the pharma space with Biocon, Alkem Lab, and Ipca Labs making up the rest of the list. Emkay Global is expecting an announcement to be made by MSCI by May 12.

Among the stocks that could be excluded from the index, owing to low foreign investment headroom are — Bharti Infratel, Shriram Transport, M&M Financial Services, and Tata Power. If excluded in the May rebalancing, three of these four stocks could see fund outflows of over $20 million. On similar lines, brokerage firm Motilal Oswal had also predicted the stocks that could enter the MSCI India index, earlier this month. Motilal Oswal and Emkay Global, both predict that Torrent Pharma and Biocon could be included in the next rejig. On the inclusion of Indraprastha Gas, Emkay said, “Indraprastha Gas will have an adjustment factor of 0.5 upon inclusion on account of lower foreign investment headroom of merely 18%. Therefore, its inclusion has a lower probability.” On the other hand, Motilal Oswal believes Indraprastha Gas will move to standard index from Small Cap Index.

The likely change in India’s weightage on the MSCI indexes has been aided by the change in Foreign Portfolio Investment (FPI) limits as notified by the CDSL and NSDL, earlier this month. The revision in India’s weightage will see foreign buyers lining up to buy shares in Indian listed companies. Global brokerage firm Morgan Stanley expects India’s weightage to jump by 55 basis points, resulting in passive inflows of $1.4 billion (about Rs 10,000 crore) and active inflows of $5.7 billion (about Rs 43,000 crore).

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