ICICI Bank’s weightage in MSCI EM index set to rise

KS Badri Narayanan Chennai | Updated on October 22, 2019

SBI Life, ICICI Prudential, Siemens to get into MSCI EM index; Indiabulls HF, Glenmark face exit

Thanks to foreign portfolio investors reducing their stake in ICICI Bank during the preceding quarter, its weightage in the MSCI index is likely to double.

Also, SBI Life Insurance, ICICI Prudential Life Insurance and Siemens will find their place in the index.

"Due to the fall in foreign ownership from 56.8 per cent to 54 per cent, the foreign room on the ICICI Bank stock has gone up to 26 per cent (higher than 25 per cent level). This makes the case for an upward movement of the adjustment factor from 0.5 to 1 and, thereby, a free float increase to 0.74 from 0.37,” Morgan Stanley Research said in a release.

According to a domestic broking firm, this will result in a flow of approximately $1.2 billion into the ICICI Bank stock.

MSCI is due to announce the results of its semi-annual index review on November 8, including a list of stock additions and removals, along with changes in weightages. The changes will be effective November 27.

Using the MSCI framework, the most important conditions to be met are a full market cap and a free float market cap, MSCI shortlists stocks that meet the criteria to be included into the MSCI India Index.

Using the MSCI criteria SBI Life Insurance, ICICI Prudential Life Insurance and Siemens India could be candidates for inclusion in the upcoming review. "We also expect the weight of ICICI Bank to rise due to an upward movement of the adjustment factor, as foreign room on the stock goes above 25 per cent," according to the MSCI note.

It also expects Indiabulls Housing Finance and Glenmark Pharma, could be considered for exclusion.

Shares of ICICI Bank are trading 4 per cent higher at Rs 455.30 on the NSE. The banking major is also set to declare its results later today. Shares of SBI Life Insurance jumped 4.21 per cent at Rs 964.95; ICICI Prudential gained 0.21 per cent at Rs 477.75; and Siemens moved up 1.44 per cent at Rs 1,672.50. Shares of Indiabulls HF slumped 4.26 per cent at Rs 221.35, but those of Glenmark edged up 0.87 per cent at Rs 302.45.

Following the changes, India's weight in the MSCI EM index could rise by 37 bps from the current level of 8.89 per cent. Over the medium term, the Finance Minister's announcement to increase the minimum statutory limit for FPI investment in a company be increased from 24 per cent to the foreign investment limit of the sectors, has the potential to increase India's weight in the MSCI EM by 81 bps, it further said.

Currently, Reliance Industries, with a weightage of one point, and HDFC (0.85 per cent) are among the top 10 constituents of the MSCI Emerging Market index.

China tops with 31.89 per cent weight, followed by South Korea 12.15 per cent, Taiwan 11.48 per cent and India 8.86 per cent.

The MSCI Emerging Markets Index captures large and mid-cap representation across 26 emerging markets (EM) countries. With 1,202 constituents, the index covers approximately 85 per cent of the free float-adjusted market capitalisation in each country, it said.

Published on October 22, 2019

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