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MSCI rejig may lead to $1 billion FII outflow from India

Inflows from foreign portfolio investors have already slowed down in May.

ETMarkets.com|
May 14, 2019, 01.12 PM IST
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“There could be an outflow of $700 million at India level due to the recent decisions taken by MSCI Inc. Therefore, it is a bit negative for the Indian market,” said Yogesh Mehta, MOSL.
MSCI on Monday announced an increase in weightage of China A shares in the MSCI Emerging Markets index. It also decided to add MSCI Saudi Arabia and MSCI Argentina indices to the Emerging Markets gauge. The moves may potentially lead to an outflow of around $1 billion FII money from Indian markets.

In addition to this, the global index provider also decided to add ICICI Lombard to replace Cadila Healthcare in MSCI India index.

“There could be an outflow of $700 million at India level due to the recent decisions taken by MSCI Inc. Therefore, it is a bit negative for the Indian market,” said Yogesh Mehta, Vice-president, Motilal Oswal Financial Services.

Inflows from foreign portfolio investors have already slowed down in May. They poured in just Rs 96 crore on a month-to-date basis till May 13 after a Rs 12,000 crore inflow last month.

The global index provider said that as many as 30 Saudi Arabian securities will be added to MSCI Emerging Markets Index, representing an aggregate weight of 1.42 per cent. It also added eight Argentinian securities with an aggregate weight of 0.26 per cent.

“With the easing of foreign-ownership limits and other enhancements taken to improve market access, Saudi Arabia has provided more potential opportunities for foreign investors,” MSCI said in a blog on May 7.

Twenty-six China A shares (18 of which are ChiNext stocks) will be added to the MSCI China Index and the inclusion factor for 238 existing constituents will be increased from 0.05 to 0.10. China A shares will have an aggregate weight of 5.25 per cent and 1.76 per cent in the MSCI China and MSCI Emerging Markets indices, respectively.

The weight increase of China A shares in the MSCI Emerging Markets indices will be implemented through a three-step process. All the changes will be implemented as of the close of May 28, 2019.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers, said a number of FIIs use MSCI as the benchmark. “Obviously, the inclusion of China and other countries will bring some adjustments in India weightage. That may have a little impact on inflows to Indian equity,” he said.
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