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India’s weightage in MSCI EM index set to go up by 70 bps

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India’s weightage in the MSCI Emerging Market index is set to rise as the Finance Minister on Friday confirmed implementation of the Budget announcement of increasing the statutory foreign portfolio investment limit in a company from 24 per cent to sectoral foreign investment limit effective April next year, said Morgan Stanley. “Using the current list of constituents, we expect MSCI India’s weight to rise by about 70 bps (basis points) in the semi-annual index review of May 2020, implying passive flows of US $2.5 bn (billion),” said Morgan Stanley. The foreign brokerage said MSCI India’s weightage in MSCI EM will go up to 9.6 per cent from 8.9 per cent. Companies have until March 31, 2020, to reduce the FPI limit through an approval of the board of directors and a special resolution passed by shareholders.

Such companies will retain the option to increase the FPI limit to a maximum of the foreign sector limit at a later date. “Once the FPI limit increases, it cannot be reduced.

Thus, unless companies pass board and shareholder resolutions, all companies in India will irreversibly have their FPI limit at the sector limit after 31st March 2020,” said Morgan Stanley. The foreign brokerage said India’s free float market capitalisation rank has been lower compared to its market cap and GDP rank because of high promoter holdings and low foreign investment limits which has constrained active and passive allocations to India from abroad. Larsen - Toubro, Asian Paints, Bajaj Finserv, Bajaj Finance, Britannia, Tata Steel, Bharti Infratel, Titan, Bajaj Auto, Tech Mahindra and Divi's Laboratories are among the stocks that are likely to see the most increase in weightage given the subsuming of foreign limits. Among the public sector stocks in the MSCI India index, NTPC, Power Grid, HPCL, Petronet LNG, Container Corporation and REC could see an increase in weight. Kotak Mahindra Bank, Bajaj Holdings, United Breweries, Power Finance Corporation, Biocon, Indraprastha Gas, ACC and MRF are the large-cap stocks in the BSE 200 index that could be included from the subsuming of the foreign limits.




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