Indian stock exchanges’ decision to stop sharing data with overseas peers threatens nearly $13 billion invested in India by overseas funds tracking the MSCI Emerging Markets Index.
MSCI Inc. in a letter on Feb. 15 called Indian bourses and regulator’s move to restrict access to data anti-competitive and warned that it could lead to a change in market classification for India, currently clubbed with emerging nations. It asked them to reconsider the decision.
The letter is a warning, Tushar Mahajan, head of Futures and Options at Nomura India, told BloombergQuint. “We have to take it as that. It cannot be dismissed as just another letter. I am hoping that at some point exchanges and the MSCI will be able to reach a solution.”
Three Indian stock exchanges—National Stock Exchange, Bombay Stock Exchange and Metropolitan Stock Exchange—terminated licencing pacts with their foreign counterparts to prevent from trading volumes moving offshore and promote international financial hub in Gujarat, Prime Minister Narendra Modi’s home state. That came after Singapore Stock Exchange started Nifty single-stock futures that contribute a third of futures volumes for the NSE.
Funds having exposure to MSCI Emerging Market Index have nearly $88 billion in assets under management, Bloomberg data show. India has an 8.3 percent weight in the benchmark, which means nearly $7.3 billion have been invested in the country by such funds.
There are 79 stocks in MSCI India Index. Foreign funds invest in India based on the constituents in the Index. The top 5 weighted stocks in MSCI India Index:
- HDFC Ltd.
- Reliance Industries Ltd.
- Infosys Ltd.
- Tata Consultancy Services Ltd.
- Axis Bank Ltd.
Besides, the iShares MSCI India Exchange-Traded Fund traded in the U.S. has total assets under management of $5.5 billion and has MSCI Emerging Markets as the primary benchmark, according to Bloomberg data.
If India drops out of the Emerging Market Index, there will be a very big repercussion, said a senior custodian at a multinational bank on condition of anonymity. MSCI is trying to indicate that this is a significant measure and it should have avoided, he said. The most likely outcome could be reduction in weight.
Indian exchanges are trying to promote trading at the International Financial Service Centre at Gujarat International Finance Tec-City near Ahmedabad. It is an offshore jurisdiction that allows tax relief to foreign investors.
Nomura India’s Mahajan said it’s important to find a middle ground. Either by allowing MSCI futures to be traded on the SGX or may be a connect system between the SGX and India or SGX and the GIFT City, he said.