MSCI Rejig May Trigger .` 1.5k-cr FII Outflow
HDFC Bank shares worth 2,750 cr may be sold as MSCI reduces its weightage; NTPC, Sun, HUL & M&M will see inflows on increased weightage
India would see foreign institutional outflows of nearly .` 1,500 crore from June 2 when changes in international equity compiler MSCI’s global indices take effect. While adding Aurobindo Pharma to its large-cap index, MSCI has reduced the weights of HDFC Bank and Power Grid Corporation on this measure. Many foreign institutional investors (FIIs), mainly exchange traded funds (ETFs), benchmark their Indian portfolios to the MSCI index. So, when there is a reduction or increase in weightage of a stock, these investors also trim or increase their stakes accordingly. HDFC Bank, which has been banned by the RBI from selling more stake to foreign institutional investors (FIIs), will be the biggest loser because of the MSCI change. MSCI has reduced the weightage of India’s second-biggest private sector bank from 5.785% to 1.921%. Last December, HDFC Bank’s weightage in the MSCI Emerging Market India Index was reduced from 7.1% to 5.785%. Following this change, HDFC Bank could see FIIs selling 3.54-crore shares, or 1.5% of equity worth .` 2,750 crore. Shares of HDFC Bank, which has gained 18% so far this year, has underperformed the BSE Bankex by 8% after RBI banned fresh FII purchase in the stock after foreign ownership in it crossed the mandated 49% limit. The proposal to increase the FII limit is pending with the Foreign Investment Promotion
Aurobindo Pharma has been added to the MSCI Index following an increase in its m-cap
Board (FIPB), which wants more clarity on whether to consider the 22.64% stake held in the bank by its parent HDFC as domestic or foreign investment as HDFC itself is majority-owned by FIIs. The rebalancing could bring in supply of about 3.5-crore shares into the market. In the semi-annual index review, MSCI made some changes in its constituents for the MSCI Global Standard Indexes and MSCI Smallcap Indexes, which will be effective from June 2. Accordingly, the weightage of six stocks — NTPC, Sun Pharma, HUL, Dr Reddy’s, M&M and Sesa Sterlite — will increase, while HDFC Bank’s and Power Grid’s will decrease, MSCI said in a statement.
Foreign Institutional Investors (FIIs) have invested nearly .` 37,000 crore in Indian equities so far this year, resulting in 13% rise in benchmark indices. India’s largest power company NTPC will be the biggest beneficiary of the MSCI change as FII holding in it could go up by 0.3%, which will likely translate into an inflow of .` 338 crore. Shares of NTPC have declined 9% so far this year against the 11% rise in the BSE Power index. FIIs held 9.33% stake in the company as on March 31. Aurobindo Pharma has been added to the MSCI Index following an increase in its market capitalisation. The pharma company’s market capitalisation has ris- en 216% in one year from .` 5,662 crore to .` 17,919 crore.
Other stocks that will be positively impacted with net inflow over the next few months are Sun Pharma (.`320 crore), HUL (.`310 crore), Dr Reddy’s (.`194 crore), M&M (.`173 crore) and Sesa Sterlite (.`144 crore). Power Grid Corporation, whose MSCI weightage has also been reduced, will see an outflow of nearly .` 237 crore.
Meanwhile, MSCI has added 13 stocks to its India index, including Bajaj Corp, Coromandel International, Engineers India, Ess Dee, Indian Bank, Jaiprakash Power and Oberoi Realty. The excluded companies are Alok Industies, Chambal Fertilisers, Eicher Motors, Graphite India.