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BL Research Bureau

In its semi-annual review, Morgan Stanley Capital International (MSCI) has rejigged the constituents of its emerging markets and India indices.

The changes, which are to take effect on May 29, will have the effect of marginally reducing India’s weight in the MSCI Emerging Markets index from its present 6.47 per cent to 6.36 per cent. The immediate outflows estimated on this account ($35 million) are not very significant in light of the flows witnessed into Indian stocks in recent weeks (Inflows have already crossed $1.9 billion for May). But the reduced weight may mean a lower share for India, out of future emerging market allocations. It needs to be noted that the change comes at a time when global fund trackers such as EPFR are reporting a surge in emerging market allocations by foreign institutional investors.

Global emerging market equity funds took in $1.1 billion of the $3.69 billion collective inflows into equity funds in the week ended May 8.

The review has also made changes in individual index constituents from India. Idea Cellular, Bajaj Auto and United Phosphorus have been the new inclusions to the index and Reliance Petroleum and TCS have seen their weights hiked. Tata Communications, Unitech, Indian Hotels and Essar Oil have been excluded from the index.

Though index changes have not traditionally had much of an impact on individual stocks, the above stocks may see activity in the run-up to May 29, the date of the change, given that market momentum in recent weeks has been driven mainly by FII activity.

It bears mention that the recent FII buying in Indian stocks has been attributed largely to global institutional investors raising their emerging market allocations, leading to a proportionate share of inflows for India. The gains in the newcomers to the index — Idea Cellular, Bajaj Auto and United Phosphorus in Thursday’s session can be traced to these changes.

MSCI develops and maintains equity, hedge fund and REIT indices that serve as benchmark indices on a world wide basis.

The share price of Essar Oil dipped 5.95 per cent, Tata Communications 5.79 per cent, Indian Hotels 4.82 per cent and Unitech 0.1 per cent.

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