MSCI Additions and Deletions From 30-Nov

Morgan Stanley Capital International (MSCI), the largest provider of country specific indices to global portfolio managers, has announced a few interesting shifts in the MSCI Global Standard India Index. Here are the 7 stocks that are being added to the MSCI index effective from 30-Nov close and the 2 stocks that are going to be removed.
 

Stocks to be added:

1) Godrej Properties
2) IRCTC
3) Mindtree Ltd
4) Mphasis Ltd
5) SRF Ltd
6) Tata Power
7) Zomato Ltd

Stocks to be removed:

1) Rural Electrification Corporation 
2) IPCA Laboratories

The 7 stocks that are being added to the MSCI Global Standard India Index will result in net inflows of around $1.45 billion.

However, if you factor in the outflows due to the removal of REC and IPCA, then the net inflows from global fund managers would be to the extent of $1.25 billion. That is substantial flows that is expected as part of the rebalancing.

How exactly do these flows come about?

Some of the biggest participants in the Indian markets are global passive funds. Now, passive funds do not take view on specific stocks or sectors but on markets as a whole. They do it through representative indices.

One of the most popular benchmarks for these passive investors to allocate money to various countries is via these country specific indices offered by MSCI. It is estimated that  90% of the global fund managers allocated based on MSCI.

Passive funds broadly comprise of global index funds and global exchange traded funds or ETFs. These index funds and ETFs prefer the MSCI indices since they are created using a fine-tuned methodology considering liquidity at a micro and macro level.

This ensures that they are able to allocate large sums of money to such markets by just riding on these indices. The only consideration for such investors is the tracking error, which is monitored by MSCI.

It is not just about the MSCI inclusion. It is estimated that an MSCI inclusion normally is followed by inclusion in the FTSE world index too.

That would lead to further flows of capital. In addition, a slew of brokers, traders and investors also trade on these stocks ahead of the shift creating more liquidity in these counters.

Also Read:-

MSCI India Index Rebalancing