Kotak Bank, Biocon, Torrent Pharma to benefit from MSCI index rejig

KS Badri Narayanan Chennai | Updated on April 07, 2020 Published on April 07, 2020

From April, India moved into a new regime on foreign limits, under which the FPI limit has been increased to the sectoral foreign limit, thus giving more headroom for FPIs.

$1.3-billion FPI inflows expected; RIL, HDFC, Infosys, ITC, Bajaj Auto to see reduction in weight

Thanks to the new FPI (foreign portfolio investment) norms, analysts at Morgan Stanley expect an inflow of $1.3 billion into Indian stocks through the MSCI Index. The stocks that are expected to benefit are Kotak Mahindra Bank, Biocon, Torrent Pharmaceuticals, Abbott India and P&G Hygiene, the analysts said in a note.

According to MSCI, the rebalanced MSCI India weight in the emerging market (EM) index will increase to 0.55 percentage point. From April, India moved into a new regime on foreign limits, under which the FPI limit has been increased to the sectoral foreign limit, thus giving more headroom for FPIs.

“This change is an attempt to fix MSCI India's low float compared to global markets,” said Ridham Desai, Head of India Research and India Equity Strategist at Morgan Stanley, in the note. “Over the next few months, we expect MSCI to rebalance MSCI India weights to reflect this change along with removing the DR (depository receipts) in the FOL (foreign ownership limits) calculation. We estimate MSCI India's weight in EM to rise by 55 basis points (bps) and India's foreign inclusion factor (FIF) to rise from 0.39 to 0.42.”

Top beneficiaries

The top five beneficiaries (weight to be increased) of this regime change are L&T, Asian Paints, Nestle India, Bajaj Finance and Divi's Laboratories, the note said, adding that the rejig also creates an opportunity for new stocks to be included.

On a relative basis, large-cap stocks such as Reliance Industries, HDFC and Infosys are likely to see the most reduction in weights given the upward re-balancing of beneficiaries. Additionally, two stocks that could see reductions in weight in the index due to the removal of DRs are ITC and Bajaj Auto, the note further said.

India' weight in the MSCI Emerging Market Index would rise to 8.1 per cent from the current 7.6 per cent, the note said.

Private sector companies that could see increased weightage are Britannia Industries, Shree Cement, Tata Steel, Bharti Infratel, Colgate Palmolive, Titan Company, JSW Steel, Cipla, Tech Mahindra, Hero MotoCorp, Sun Pharma, M&M, Info Edge, Motherson Sumi, Siemens, Tata Power, Ashok Leyland, Marico, Grasim, Aurobindo Pharma and Bharat Forge. Among the PSUs, NTPC, Power Grid Corp, Petronet LNG, Concor and Rural Electrification will also stand to benefit.

Motilal Oswal take

In a note, Motilal Oswal Financial Services said Kotak Mahindra Bank will be included with half or full weight depending on whether 55 per cent or 74 per cent is taken as the new FPI limit. Besides, it expects Indraprastha Gas and Power Finance Corporation to move from the Small Cap to Standard Index.

Why delay?

India had issued a circular last October raising the statutory FPI limit of Indian companies to the sectoral foreign investment limit, with effect from April 1, 2020. However, MSCI last week put off the rebalancing, and said it would wait for the practical implementation of these changes and the systematic publication of the new sectoral limits applicable to Indian securities before making any changes to the MSCI indices.

Following this, depositories CDSL and NSDL revised FPI limits for stocks listed on domestic stock exchanges last week.

Published on April 07, 2020

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