Indian stock market likely to see $2 billion worth inflows on MSCI Index rebalancing today

Indian stock market is expected to see inflows worth more than $2 billion on Friday in FII passive flows following the adjustments to the MSCI Global Standard Index and MSCI India Smallcap Index.

In its May 2024 review, MSCI added 13 stocks and removed three from the MSCI Global Standard Index. The quarterly rebalancing was announced on May 15 and comes into effect on May 31.

The global index provider has included PB Fintech, Sundaram Finance, NHPC, Phoenix Mills, Indus Towers, Bosch, Jindal Stainless, Solar Industries, Torrent Power, Mankind Pharma, JSW Energy, Canara Bank and Thermax in the MSCI Global Standard Index.

Read here: MSCI May 2024 rejig: JSW Energy, Canara Bank among 13 additions; Paytm, Berger Paints among 3 exclusions

PB Fintech is estimated to receive the highest inflow worth approximately $283 million, followed by Sundaram Finance at $243 million, as per data by Nuvama Institutional Equities.

Indus Towers, Phoenix Mills and NHPC are expected to see inflows in the range of $216 million - $234 million.

On the other hand, the exclusions from the index include Berger Paints, Indraprastha Gas and One 97 Communications, the parent company of fintech giant Paytm. These stocks are likely to witness outflows ranging between $70 million and $117 million.

With 13 inclusions and 3 exclusions, the net stock count post-rejig will be 146 for India in the MSCI Standard/EM Index.

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Additionally, 28 stocks will enter in the MSCI India Smallcap Index and 14 stocks will exit from the index. Key new entrants include Aditya Birla Sun Life AMC, Puravankara, DOMS Industries, Vedanta Fashions, Gillette India, Juniper Hotels, RR Kabel, Greenlam Industries VA Tech Wabag, and Tips Industries.

Stocks to be removed from the Smallcap index include Dreamfolks Services, Indoco Remedies, Borosil, Polyplex Corporation and Tatva Chintan Pharma, among others.

India’s representation in the MSCI Emerging Markets Index is set to increase from the current 18.3% to closer to 19%. This increase in weight, in terms of basis points, is the highest among any EM Index in this rejig, said Abhilash Pagaria of Nuvama Alternative & Quantitative Research.

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The highest representation in the MSCI EM Index is China, with a weight of 25.7% and 703 members in the index, compared to India's 18.3% weight with 136 stocks.

The increase in India's representation in the MSCI EM pack from 8% in October 2020 to current 18.3% can be attributed to multiple factors. These factors include India's standardized Foreign Ownership Limit (FOL) in 2020, robust performance by Indian equities, particularly in the Midcap segment, leading to numerous inclusions in every review and relative underperformance by other EM packs, especially China, Pagaria.

With a consistent flow from DII and now if steady FII participation resumes, there is potential for India to surpass a 20% weight in the MSCI EM Index by the second half of 2024 itself, he added.

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