India’s weightage in emerging market index to go up by 70 bps in May: Morgan Stanley

Our Bureau Chennai | Updated on December 17, 2019

Implementation of FPI hike from April 1 will see weightage increase to 9.6 per cent


India’s weightage in the MSCI Emerging Market Index is likely to increase by at least 70 basis points in May 2020, which is expected to draw investment of $2.5 billion by passive funds. India's weight in the MSCI Emerging Market index will rise to 9.6 per cent from the current 8.9 per cent, the global index provider and investment advisor said in a report.

Foreign portfolio investors have invested about Rs 92,500 crore in the Indian market so far this year. MSCI reviews its indices every six months in May and November.

The Finance Minister on December 13 confirmed that the Budget announcement (of July 5, 2019) increasing the statutory FPI (foreign portfolio investment) limit in a company from 24 per cent to the sectoral foreign investment limit, would be implemented effective April 1, 2020. This would lead to MSCI India's weightage in the MSCI EM to rise, Morgan Stanley said in a note.

"Using the current list of constituents, we expect MSCI India's weight to rise by about 70 bps in the semi-annual index review of May 2020, implying passive flows of $2.5 billion," the note added.

Based on the Central Government notification, companies have until March 31, 2020, to reduce the FPI limit via an approval by the board of directors and a special resolution passed by the shareholders. "Such companies will retain the option to increase the FPI limit to a maximum of the foreign sector limit at a later date. However, once the FPI limit increases, it cannot be reduced. Thus,unless companies pass board and shareholder resolutions, all companies in India will irreversibly have their FPI limit at the sector limit after March 31, 2020," the note further said.

Among the stocks that would benefit due to the increase in weightage in the index include Asian Paints, Bajaj Finance, Bajaj Finsev, Britannia, Concor, Kotak Mahindra Bank, HPCL, NTPC, REC, Tata Steel and United Breweries.

Published on December 17, 2019

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