India Stocks May Reap $2.5 Billion Inflow on MSCI Index Changes

(Bloomberg) -- India’s stock market will see a net inflow of about $2.5 billion from the next round of changes to MSCI Inc.’s indexes, according to Morgan Stanley.

Existing members of the MSCI India Index will gain $1.93 billion in new passive funds after the implementation of new foreign ownership limits, while potential additions to the gauge -- namely Kotak Mahindra Bank Ltd., agrochemical maker PI Industries Ltd. and drugmaker IPCA Laboratories Ltd. -- will get a total allocation of about $0.6 billion, analysts wrote in a note.

India’s weight in the MSCI Emerging Markets Index will rise to as much as 8.8% from the current level of 8.1%, analysts Sheela Rathi and Ridham Desai said.

The inflows are likely to burnish India’s position as the only stock market in emerging Asia excluding China that has seen a net foreign inflow this year. Overseas investors have pumped $6.35 billion into Indian stocks year-to-date even as the nation grapples with the world’s second-largest coronavirus caseload and a historic economic contraction.

The foreign ownership limits for Indian members of MSCI measures will be altered following rule changes by the nation’s share depositories, the index provider said in a statement. Investment ceilings will be either raised or kept the same for most stocks, according to a simulation done by MSCI.

Existing members that will get passive foreign inflows of more than $100 million include Asian Paints Ltd., Bajaj Finance Ltd., Britannia Industries Ltd., Larsen & Toubro Ltd. and Nestle India Ltd, according to Morgan Stanley. Those stocks all advanced, in a range of 2.7% to 5.5% as of 1:44 p.m. in Mumbai.

Gains were also seen in stocks that have been touted as potential additions in the next review of MSCI’s key gauge for Indian equities. Kotak Mahindra surged almost 12% intraday and was set for its highest close since March, boosted also by strong profits and speculation it may seek an acquisition. IPCA jumped as much as 9.2% and PI Industries gained 1.6%.

MSCI will implement its new foreign ownership limits at the close of Nov. 30, when changes due from its semi-annual review will also become effective. The index provider is due to announce the results of the member revamp on Nov. 10, according to its website.

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