Three stocks to spur India’s MSCI weight

ICICI Bank’s weight in the MSCI EM index is set to increase because of the fall in foreign ownership from 56.8% to 54%

India’s weight in the MSCI Emerging Markets index is set to rise, thanks to the possibility of the addition of as many as three domestic stocks to the index. Morgan Stanley, in a note on Tuesday, said SBI Life Insurance, ICICI Prudential Life and Siemens India were key candidates for inclusion in the upcoming review. The weight of ICICI Bank is also set to increase, as the legroom for foreign portfolio investor (FPI) investment in the stock has gone up.

If all these changes are implemented, India’s weight in the MSCI EM could rise 37 basis points (bps) from the current level of 8.89 per cent, says Morgan Stanley. Passive inflows of more than $1.5 billion could come into India, on account of these changes.

The MSCI EM is tracked by funds with assets of over $400 billion.

Morgan Stanley says the possibility of ICICI Prudential

Life and SBI Life being included in the index was high, as the stock meets the large-cap market cap stock criteria of the MSCI.

Further, the recent share sales in the stock means it also meets the free-float market cap criteria. ICICI Bank’s weight is set to increase because of the fall in foreign ownership from 56.8 per cent to 54 per cent.

Meanwhile, Indiabulls Housing Finance and Glenmark Pharmaceuticals are two stocks that could be excluded from the MSCI EM index, as their full and free-float market cap has fallen below the threshold set by the MSCI.

However, outflows on account of these two exclusions could be a little over $100 million, forecasts Morgan Stanley.

Global i ndex provider MSCI is due to announce its semi-annual index review on November 8 and the changes will be in effect from November 27.

In the previous reviews, India’s weight in the MSCI EM index was pruned to provide for a higher weight to the China-a shares (shares listed in mainland China).

Over the medium term, Morgan Stanley believes that India’s weight could increase further if the government goes ahead with some of the proposed policy changes.

“The finance minister ’s announcement that proposed to increase the minimum statutory limit for FPI investment in a company from 24 per cent to the foreign investment limit of the sectors, has the potential to increase India’s weight in the MSCI EM by 81 bps. We await a press note or a circular from the government confirming these changes,” the brokerage said in a note.