Global index aggregator MSCI has added 8 stocks to the Global Standard Index, while removing one, as a part of its quarterly review.
Eight stocks including Power Finance Corporation (PFC), REC, HDFC Asset Management Company (AMC), IDFC First Bank, Astral, Cummins India, Supreme Industries, and Ashok Leyland are added to the index, whereas, ACC has been excluded.
"The entry of REC and Supreme Industries into the index was a surprise as they were strong contenders for the November 2023 review," said brokerage house Nuvama Alternative and Quantitative Research.
According to the brokerage, PFC and HDFC AMC are likely to see inflows of $203 million and $153 million respectively due to this addition.
Similarly, IDFC First Bank is also likely to see inflows worth $204 million, Ashok Leyland worth $196 million, Cummins India worth $173 million and Astral worth $170 million, added the report.
On the other hand, the exclusion of ACC from the index is expected to result in outflows worth $92 million, stated Nuvama.
The report also informed that the aforementioned stocks were selected via the NOC route, with India receiving six NOC slots, the highest seen in recent times.
Meanwhile, the MSCI Global Smallcap Index, added 40 stocks, while removing 11. In the Asia Pacific region, India has the most stock additions in this index.
ACC, Anand Rathi Wealth, Dreamfolks Services, Five Star Business Finance, Glenmark Lifesciences, ICRA, Kalyan Jewellers, Marksans Pharma, Mrs Bector’s Food, Neuland Laboratories, and Patel Engineering are among 40 stocks that will be added to the MSCI Global Smallcap Index with effect from August 31.
Meanwhile, Aditya Birla Capital, Ashok Leyland, Astral Ltd, BEML Land Asset, Cummins India, IDFC First Bank, NIIT, Paisalo Digital, REC, Supreme Industries, and Tata Communications will exit the global smallcap index.
How stocks are added to MSCI index
Companies are included in the indices at the value of their free public float, as measured by the Foreign Inclusion Factor multiplied by the security price.
MSCI defines the free float of security as the proportion of shares outstanding that are deemed to be available for purchase in the public equity markets by international investors. A constituent’s Foreign Inclusion Factor (FIF) is equal to its estimated free float rounded up to the nearest 5 percent for constituents with a free float equal to or exceeding 15 percent. For example, constituent security with a free float of 23.2 percent will be included in the index at 25 percent of its market capitalisation. For securities with a free float of less than 15 percent, the estimated free float is adjusted to the nearest 1 percent.
How do the changes in MSCI index impact the Indian markets?
Changes in the MSCI Index composition can have a substantial impact on the Indian stock market. Inclusion or exclusion of Indian stocks in the index can result in significant shifts in investor sentiment and fund flows.
When a stock or a group of stocks from India is included in the MSCI index, it typically leads to increased demand for those stocks from global investors. This increased demand can drive up stock prices and contribute to overall market bullishness.
Companies that are included in the index may experience increased trading volumes and improved liquidity, making them more attractive to domestic and international investors.
On the other hand, when a stock or a group of stocks is removed from the MSCI index, it can lead to selling pressure and a decline in stock prices. This can adversely affect investor sentiment and potentially trigger a broader market correction.
Companies that are excluded from the index may experience reduced trading volumes and liquidity, making them less attractive to investors.
