The changes in MSCI index constituents will be implemented as of the close of August 30.
Global passive funds, such as exchange-traded funds (ETFs), structure their portfolios based on these indices. As a result, any change in composition prompts these funds to adjust their allocations.
With these changes, India’s tentative weight in the emerging markets (EM) index is expected to rise to a record 20%, up from the current 19.4%, according to Nuvama Alternative & Quantitative Research estimates.
“With these adjustments to the EM pack, we anticipate a net FII passive inflow of $2.7 billion to $3 billion,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research. “Given the current pace and momentum, India’s weight could potentially exceed 22% by year-end.”
MSCI decided to increase HDFC Bank’s weight in two tranches — one in August and the second in the November review, provided the room for fresh foreign investments remains at least 20% in November. In August, the private lender’s weight in MSCI will increase by 1.85%. The market had anticipated an increase in HDFC Bank’s weight to between 7.2% and 7.5% in the August review, up from the current 3.8%, which could have triggered an inflow of around $3.8 billion. Now, inflows are expected to be around $1.8 billion. HDFC Bank shares fell nearly 3.5% to close at ₹1,604.
MSCI has added seven companies to its global standard index. These include Dixon Technologies, Vodafone Idea, Oil India, Zydus Lifesciences, Railway Vikas Nigam, Prestige Estates, and Oracle Financial Services. Bandhan Bank has been dropped from this index.
MSCI said it will remove the freeze on the coverage of Adani stocks. The lifting of this restriction means that these stocks are eligible to be added to the MSCI indices henceforth.
“MSCI clarifies that starting from the August 2024 Index Review, MSCI will implement the index review changes, including updates to the number of shares (NOS), foreign inclusion factor (FIF), and do mestic inclusion factor (DIF) for Adani Group and associated securities that were previously postponed,” MSCI stated.
In late January 2023, MSCI had removed Adani stocks from the free float count due to uncertainty, leading to the exclusion of Adani Energy Solutions and Adani Total Gas from the MSCI India index. Given recent qualified institutional placements, the free float of Adani Energy Solutions has increased, making it likely candidate for index inclusion. However, Adani Total Gas, which was removed from the index, still trades at a steep discount to pre-Hindenburg report levels and may not be included soon.
Despite lifting these restrictions, MSCI emphasised its continued vigilance over Adani Group and associated securities, stating that it will monitor developments related to free float and issue further communications if necessary.
MSCI has also updated its India small-cap index, adding 27 new stocks. Notable inclusions are Bandhan Bank, Go Digit General Insurance, Protean eGov Technologies, Paras Defence and Space, and Aditya Vision. Stocks such as Dixon Technologies, Cochin Shipyard, IREDA, HUDCO, Network 18 Media and Investment, and Jaiprakash Associates have been excluded from the index.