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India weight in MSCI EM index may fall on China A-shares inclusion

The MSCI will announce the results of its semi-annual index review on May 15, 2018.

, ET Bureau|
May 02, 2018, 07.40 PM IST
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The MSCI will announce the results of its semi-annual index review on May 15, 2018.
Mumbai: India’s weightage in the MSCI Emerging Market Index is likely to fall 20 basis points as a result of inclusion of China A-shares, which would entail total outflows of around $540 million by passive funds, said Morgan Stanley in a report.

The MSCI will announce the results of its semi-annual index review on the morning of May 15 and the changes will be effective from June 1.

“Qualified A-share stocks will be included in the MSCI EM index starting in May with an inclusion factor of 2.5% applied to their free-float market cap. By August 2018, the inclusion factor will be increased to 5%... Subsequently, ceteris paribus, India’s weight in EM would likely fall by approximately 20bp (basis points) by August, implying total outflows of around US$540mn (million) by passive funds,” said Morgan Stanley’s Sheela Rathi and Ridham Desai in a report.

In June 2017, MSCI had announced that beginning June 2018, China A-shares will be included in MSCI EM and MSCI ACWI index. India’s weightage in MSCI EM index is 8.5% currently.

In specific stock inclusions, the firm said Pidilite Industries and Power Grid Corporation of India are high-conviction stocks that can be included in the MSCI India index. UltraTech Cement and Container Corporation of India could see an increase in their weightage in the index, which could lead to potential inflows of $49 million and $40 million respectively.

Avenue Supermarts, Future Retail, HDFC Standard Life Insurance and InterGlobe Aviation are also potential candidates for inclusion in the index but the conviction for addition of these stocks is less due to lower free float market capitalisation, said Morgan Stanley.

Tata Motors Differential Voting Rights and Vakrangee could be excluded from the index, said Morgan Stanley.

Sectoral classification changes are also likely. MSCI had announced in November 2017 that the telecommunication services sector will be broadened and renamed as communication services to include companies that facilitate communication and offer related content and information through various media.

Apart from the classification of telecoms sector stocks Bharti Airtel and Bharti Infratel into the communications sector, media stocks like Zee Entertainment would be reclassified into the MSCI India Communications sector from the consumer discretionary sector currently, the report stated.

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