Billions of dollars for share market put on hold; MSCI defers raising India weight in global indices

Earlier this year, as the MSCI index rejig looked almost certain with even Morgan Stanley predicting the quantum of inflows into Indian share markets.

Share market, eagerly awaiting for an increase in India’s weightage in MSCI (Morgan Stanley Capital Investment) global index, has yet again been handed a disappointment by the global index major as it deferred increasing foreign ownership limit (FOL) indefinitely. MSCI was due to announce changes to its Global Standard Index by June 30. The change in India’s weightage was expected to rope in billions of dollars in active and passive flows into Indian share markets. Instead, experts say that the move will disappoint domestic markets and could result in funds flowing out of some stocks.

“MSCI will defer until further notice potential increases in FOL resulting from the recently implemented relaxation of the Foreign Portfolio Investor (FPI) limit of Indian companies to the sectoral limit,” MSCI said in a release. The regulatory change that was announced by the Finance Minister a year ago was made effective by the depository institutions CDSL and NSDL in the beginning of April, increasing foreign ownership limit for all listed companies to their sectoral limits. MSCI said that the changes are new and more time is required for market participants to test the disclosure mechanism.

According to global brokerage and research firm Morgan Stanley, the change in India’s weightage could bring in passive inflows of over $1.4 billion and active inflows of $5.7 billion. “The market was looking forward towards this even because the quantum of funds that were expected to come in was humongous,” Ajay Bodke, CEO – PMS, Prabhudas Lilladher told Financial Express Online. “The funds that would have come in from a change had the potential to take the market into a different trajectory at a time when the economic outlook continues to remain grim and geo-political tensions heightened,” Ajay Bodke added.

Earlier this year, as the MSCI index rejig looked almost certain with even Morgan Stanley predicting the quantum of inflows into Indian share markets, brokerage firms had been rushing to predict which stocks would benefit from a change. Brokerage firm Emkay Global was expecting Tata Consumer, Torrent Pharma, Jubilant Food, Biocon, Alkem Lab, and Ipca Labs to benefit from the change. Morgan Stanley had said that  L&T, Asian Paints, Bajaj Finance, Nestle, and Divis’s Lab could see an increase in weightage.

“Basically they had said they will come up with something by June end and there was build up in some stocks like Kotak Mahindra Bank, Nestle, L&T. Anyway, they were to spread it over a few quarters as FTSE did so we were expecting this to spread longer,” said Nitesh Jain, VP – Institutional Derivatives Research, Motilal Oswal. What is more troubling for market participants is the uncertainty MSCI has left them with, giving no definite timeline as to when the decision would be revisited. “They have not indicated when they will revisit this, maybe in three months or in the next year so there is a deep sense of disappointment. The reason they have given does not look very convincing,” Ajay Bodke said. A surge in foreign flows post increase in India’s weightage would have helped domestic markets at a time when foreign investors have been pulling money away in large sums.