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At a time when Indian equities are suffering a foreign money exodus, a rejig in the MSCI index may provide some relief. As part of its quarterly index review and rebalancing of weightage, the MSCI has added two Indian stocks in the Global Standard Index. All changes will be implemented as of the closing of May 30.
As a result of the two stock additions, Indian markets are expected to see nearly $200 million inflow from foreign funds, according to an estimate by Nuvama Alternative & Quantitative Research. The two stocks to be included to the Global Standard index are Coromandel International and FSN E-Commerce Ventures, the owner of beauty brand Nykaa.
Typically, foreign passive index funds allocate money to the stocks depending on their weightage and constituents, hence a reduction in the weightage results in a direct outflow of funds from those stocks.
According to Nuvama Alternative & Quantitative Research, Coromandel is likely to see an inflow of $252 million while $199 million may be injected into FSN E-Commerce Ventures.
In the APAC region, only India has seen no stock deletion in the Global Standard index, while 17 stocks from China were removed. However, the highest number of stocks (six) added in the same index are also from China. In the America region, 28 stocks were removed from the US in Global Standard index.
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As part of the rejig, 11 stocks have been added to the MSCI Smallcap index while 22 stocks have been removed.
The MSCI India Index is designed to measure the performance of the large and midcap segments of the Indian market. With 156 constituents, the index covers approximately 85 percent of the Indian equity universe. This methodology provides coverage of the relevant investment opportunity with an emphasis on index liquidity, investability and replicability. The index is reviewed quarterly—in February, May, August and November—with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover.
How critical is foreign money to sustain rally in Indian markets?
The Indian markets have been turbulent since January due to multiple reasons, ranging from economic growth worries to recessionary trends led by the US tariff hikes and the most recent geo-political tensions between India and Pakistan. With pockets of euphoric sessions in markets, overall equities have been volatile with major sell-off by foreign institutional investors (FIIs) of Indian stocks. However, domestic institutional investors, which include mutual funds, banks, insurance and pension funds, have shown resilient buying in India.
Also read: How India can battle the global economic challenges
In April, both FIIs and DIIs were net buyers in the Indian equity markets to the tune of $530 million and $3.3 billion, respectively. That marked the second consecutive month of FIIs buying after a long selling spree. In March, FIIs were net buyers of Indian stocks worth $975 million worth of stock, while the benchmark index Nifty gained 6 percent in the month.
“The markets have seen a rebound from the lows of March even as we continue to see volatility, uncertainty, and a macro slowdown (retail/consumption growth has weakened). While there is a slowdown currently, we feel the consumption demand should see some improvement due to tax cuts, lower interest rates and lower inflation, resulting in increasing disposable incomes,” says Vinay Paharia, CIO, PGIM India Mutual Fund.
