scorecardresearchThese 3 stocks may get into the MSCI India Index; What this means for investors
BSE has launched a surveillance framework for certain midcap and smallcap stocks. (PTI Photo/Kunal Patil) 

These 3 stocks may get into the MSCI India Index; What this means for investors

Updated: 26 Apr 2022, 03:28 PM IST
TL;DR.
The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. The index is reviewed quarterly—in February, May, August, and November.

Jindal Steel & Power, Adani Power and Tata Elxsi could get included in the MSCI India index, says Edelweiss Alternative & Quantitative Research in a report.

Edelweiss believes that HDFC AMC could be excluded from the index while Indraprastha Gas may have managed to remain in the index.

The MSCI index review announcement is likely on May 13 and the re-balancing could be from May 31.

"Going by our past experience of analysing semi-annual reviews, we believe that the MSCI May 22 SAIR market cap cut-off date has already been selected in the previous week. In the week gone by, we saw immense price volatility in all the potential inclusion names, which led them to trade on and around market-cap cut-off levels, "Edelweiss said in a note.

Edelweiss believe that there would be a possibility of a FIF (Foreign Inclusion Factors) increase in IGL, and if that happens, then the counter could be saved from getting excluded. If MSCI keeps the FIF status quo, then IGL could see an outflow of USD 85mn, it said.

On the other hand, Emkay Global said that the Bank of Baroda, Tata Elxsi, NMDC, Adani Power, and AU Small Finance Bank will end up being included in the MSCI India Standard Index. They anticipate that if these stocks are added to MSCI, they will receive $485 million in inflows.

Analyst at Emkay Global expects that Bank of Baroda will be included in the MSCI India Standard Index. According to the analyst, this addition will result in a 0.16% weightage for the lender in the index and $58 million in inflows.

They also expect Tata Elxsi may see an inflow of $131 million and NMDC may get an inflow of $60 million.

"Adani Power is a low-probability inclusion idea into the MSCI indices." If the stock is included, it may result in 0.37% weightage and $132 million in inflows. Adani Power Ltd. lies on the borderline of the "extreme price increase" threshold while fulfilling other criteria by a good margin, thus making it our low probability inclusion," says Emkay Global.

What is MSCI India Index

The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 107 constituents, the index covers approximately 85% of the Indian equity universe. The MSCI India Index was launched on January 01, 2001.

The index is based on the MSCI Global Investable Indexes (GIMI) Methodology—a comprehensive and consistent approach to index construction, that allows for meaningful global views and cross-regional comparisons across all market capitalization sizes, sectors and style segments and combinations.

Top 10 Constituents, as on March 31Float Adj Mkt Cap (USD Billions)Index Weight (%)Sector 
Reliance Industries99.2510.36Energy
Infosys84.668.84Info Tech
HDFC54.245.66Financials
ICICI Bank49.505.17Financials
TCS45.644.76Info Tech
Bajaj Finance25.982.71Financials
Bharti Airtel24.622.57Comm Services
Axis Bank22.802.38Financials
HUL22.232.32Cons Staples
HCL Tech 16.671.74Info Tech
Total445.6146.51 
 Source: MSCI   

The index is reviewed quarterly—in February, May, August, and November—with the objective of reflecting changes in the underlying equity markets in a timely manner while limiting undue index turnover.

During the May and November semi-annual index reviews, the index is rebalanced and the large and mid-capitalization cut-off points are recalculated.

MSCI Indices

In each market, MSCI creates an Investable Market Index, a Standard Index, a Large Cap Index, a Mid Cap Index, and a Small Cap Index. The Standard Index is the aggregation of the Large Cap Index and the Mid Cap Index, and the Investable Market Index is the aggregation of the Standard Index and the Small Cap Index. The four most popular tracks of MSCI are - emerging markets, frontier markets, developed markets excluding the United States and Canada, and the world market.

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% for constituents with a free float equal to or exceeding 15%. For example, constituent security with a free float of 23.2% will be included in the index at 25% of its market capitalization. For securities with a free float of less than 15%, the estimated free float is adjusted to the nearest 1%.

Take the case of the recently merged entity (HDFC-HDFC Bank), which may make it into the MSCI India Index only if international selling continues, according to Macquarie.

If there’s extra selling by foreigners, the (HDFC-HDFC Bank), may make it into the MSCI Index. The proportion of shares accessible to international traders in (HDFC-HDFC Bank) is now around 13.7%, in comparison with the utmost restriction of a minimum of 15%, mentioned by Macquarie.

Why Investors Use MSCI India Index

Foreign investors want international markets to invest their funds. They want to know more about the stability and volatility in the prices of shares. The MSCI India Index acts as an indicator of the soundness of the Indian capital market.

MSCI India Index Annual Performance
MSCI India Index Annual Performance