Morgan Stanley Sees $7.1-Billion Inflows Into India On MSCI Rejig
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Morgan Stanley Sees $7.1-Billion Inflows Into India On MSCI Rejig

Indian stocks are expected to see an inflow of more than $7 billion on account of a likely increase in their weights on the MSCI Index.

Morgan Stanley expects MSCI Inc.—the world’s biggest index compiler with about $12 trillion in assets benchmarked to its products—to rebalance India weights to reflect the change in sector-wise limits for investment in stocks by overseas investors over the next few months.

As a result, “MSCI India’s weight in EM is expected to rise by 55 basis points and India’s foreign inclusion factor to rise from 0.39 to 0.42, which would imply passive inflows of $1.3 billion and active inflows of $5.7 billion”, Ridham Desai, equity strategist at the research firm, said in the report.

From April 1, 2020, India moved into a new regime on foreign limits whereby the foreign investment limit has been increased to the sector threshold. This change is an attempt to fix MSCI India’s low float compared to global markets, the report said.

On March 31, MSCI in a media statement had 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. Also, MSCI will maintain the current foreign ownership limit for Indian companies and will defer changes to the foreign inclusion factors resulting from foreign ownership limit and foreign room changes as part of the May 2020 Semi-Annual Index Review and Corporate Events, the statement said.

On April 2, National Securities Depository Ltd. published the data in order to expedite this implementation.

Who May Benefit The Most

According to Morgan Stanley, the top five beneficiaries of these regime changes are:

  • Larsen & Toubro Ltd.
  • Asian Paints Ltd.
  • Bajaj Finance Ltd.
  • Nestle India Ltd.
  • Divi’s Laboratories Ltd.

That’s because these stocks could see the highest increase in their weights in the index, the research firm said.

On a relative basis, large-cap stocks such Reliance Industries Ltd., HDFC Ltd. and Infosys Ltd. are likely to see the biggest reduction in weights, given the upward rebalancing of beneficiaries.

Likely New Entries

Stocks like Kotak Mahindra Bank, Biocon Ltd., Indraprastha Gas Ltd., Torrent Pharmaceuticals Ltd., Abbott India Ltd. and Procter & Gamble Hygiene will be in focus as the change in foreign limits creates an opportunity for more stocks to be included in the index.

The billionaire Uday Kotak-led lender could see the highest inflows of $450-910 million depending on headroom for FIIs. To be sure, the current foreign investment limit in Kotak Mahindra Bank is up to 55 percent. The inflow is subject to the lender opening up the limit to 74 percent.

The two stocks that could see weight reductions due to removal of depository receipts are ITC Ltd. and Bajaj Auto Ltd., Morgan Stanley said.

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