MSCI revision could bring windfall gains to shares of certain companies including Kotak Mahindra Bank, IGL and Biocon, but at the same time, may cut the heft of heavyweight stocks such as Reliance Industries and HDFC.
The expansion of India’s weightage in MSCI indices, prompted by a regulatory change in the foreign portfolio investment (FPI) limits of public listed companies, could bring windfall gains to shares of certain companies including Kotak Mahindra Bank, IGL and Biocon, but at the same time, may cut the heft of heavyweight stocks such as Reliance Industries and HDFC. The change in India’s weightage would flood the Indian equity markets with funds worth over Rs 52,000 crore as foreign investors would queue to invest in shares of public listed Indian companies.
“The top five beneficiaries of this regime change are L&T, Asian Paints, Bajaj Finance, Nestle and Divi’s Labs – these stocks could see the most increase in their stock weights in the index,” Morgan Stanley said in a research note. “On a relative basis, large cap stocks such as RIL, HDFC, and Infosys are likely to see the most reduction in weights given the upward rebalancing of beneficiaries,” Morgan Stanley research said. The three stocks, whose relative weightage could be cut, are the top three constituents on the MSCI India index.
Reliance Industries, India’s largest company in terms of market capitalization on the S&P BSE Sensex, has been assigned 11.36% weightage on MSCI India, as on March 31. HDFC, the second largest constituent on the MSCI India, has been assigned 9.58% weightage, while Infosys is at 7.81%.
The change in India’s weightage on the index, according to Morgan Stanley, will result 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). With foreign funds to the tune of Rs 1.1 lakh crore exiting the Indian share market in March alone — owing to a global sell-off aided by the coronavirus pandemic — the likely inflow of billions of dollars could prove fruitful in reviving the market sentiment.
The decision to increase FPI limit for listed entities was made public by CDSL and NSDL, on friday last week. The decision was a follow-up on the announcement made by the Finance Ministry in October last year. Earlier last week, MSCI in a press release announced its decision to defer the rebalancing of India’s weightage, owing to the lack of company level foreign limit data. Morgan Stanley said that the rebalancing of India’s weightage could be taken up by MSCI in a few months now that the FPI limits have been rejigged.