The Hindu Business Line : MSCI index changes may not impact much

Changes announced by Morgan Stanley Capital International in its widely tracked benchmark indices, following its semi-annual review, may not have very significant implications for overall liquidity flows into the Indian market. But the index changes could have a significant impact on individual stocks that have been earmarked for changes.

Given that it is among the leading index providers globally, MSCI’s indices are tracked and used as benchmarks by a large number of global funds and institutions seeking a regional or country exposure or attempting to outperform specific local markets such as India. Reports suggest that over $3 trillion in funds are pegged to the MSCI indices.

Marginal impact

The review on Tuesday has resulted in only a marginal hike in India’s weight within the Emerging Markets basket. India’s weight in the MSCI EM Asia index has moved up by 5 basis points to 7.16 per cent, while weights to markets such as China and Brazil have risen by a higher proportion; this suggests that the changes may have only a marginal impact on overall India exposures for global institutions.

However, stocks of companies such as DLF and Sterlite Industries which have gained an entry into the MSCI Emerging Market Index and apart from these, stocks of Cairn India, GMR Infrastructure, HCL technologies, NTPC, Reliance Natural Resources and United Spirits, which are set to be included in the MSCI India Index, may witness heightened buying interest and improved liquidity in the run-up to their inclusion.

On the other hand, Ashok Leyland, Asian Paints, Nestle, GlaxoSmithKline Pharma, Hindustan Petroleum, Videocon Industries, and Bharat Forge, set to be excluded from the MSCI India Index may witness a waning of liquidity, if not buying interest.

Stocks such as Nestle India and GSK Pharma that already enjoy limited liquidity in the domestic bourses, may see lower institutional interest. The changes are slated to take effect from the close of trading on November 30.

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