For the May 2024 MSCI Index review, nearly $2 billion is expected to flow into the Indian market. Furthermore, the upcoming August rejig of the MSCI Global Standard Index is set to include eight stocks, likely triggering passive inflows from investors tracking this influential benchmark.
To learn more about what the MSCI Global Standard Index is and understand the significance of such inclusions, continue reading.
What is the MSCI Global Standard index?
A group of indexes developed by Morgan Stanley Capital International (MSCI) is referred to as the MSCI Index. Across the world, investors use these indices to gauge how well stock markets are performing. They are vital tools for investment decisions, covering various market segments and sizes, including emerging markets and developed economies.
MSCI is recognised for producing a broad range of indexes. These include the MSCI Frontier Markets Index, MSCI India Index, and MSCI Emerging Markets Index, which concentrate on particular economic sectors. As of December 31, 2023, the equity indexes benchmark approximately $15.6 trillion in assets under management.
MSCI’s flagship global equity index is the MSCI All Country World Index (ACWI) Investable Market Index (IMI). This index includes large, mid, and small-cap stocks from 23 developed and 24 emerging markets, covering nearly 99% of the global equity investment opportunity.
These indices have multiple functions, including benchmarking exchange-traded funds (ETFs) and mutual funds. This means that many investment funds aim to match or outperform the returns of an MSCI index. MSCI updates its indexes regularly, reflecting changes in the market and ensuring they remain relevant for users.
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Understanding the impact of MSCI inclusion
When stocks from India are included in the MSCI Global Standard index, it often results in a noticeable effect on their market behaviour. This inclusion generally increases global visibility and attracts foreign investors. As a result of increased demand, the prices of these stocks can increase.
This influx of investment can also enhance the liquidity of the stocks, improving their trade volumes. These modifications increase the attractiveness of these stocks to a wider spectrum of investors, both domestically and abroad.
Conversely, stocks that are removed from the MSCI index may face negative consequences. Exclusion typically leads to a decline in demand, which can decrease stock prices. This reduction might also impact the overall market sentiment negatively.
Furthermore, these excluded stocks might suffer from lower liquidity, making them less desirable to investors. This change can especially affect large-cap stocks, which usually have significant market influence. The shift in their status can sway market dynamics considerably.
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MSCI Global Standard index India
India’s role in the MSCI indices, particularly the MSCI Emerging Markets Index, is quite substantial and has been growing in importance. As of April 2024, India’s weighting in this index reached 18%, a significant increase from just 8% in early 2020. It is anticipated that this upward trend would continue, possibly reaching 20% by the second half of 2024..
This notable rise in India’s weight can be attributed to several factors. The standardisation of India’s Foreign Ownership Limits (FOL) in 2020 played a crucial role, as did the strong performance of Indian mid-cap stocks. Additionally, the underperformance of other emerging markets, notably China, has also shifted more focus towards India.
Currently, the MSCI Standard Index/EM Index includes 136 Indian stocks, with this number expected to increase to around 145 by May 2024. This increase reflects the growing significance of the Indian market in the global investment landscape.
The MSCI indices’ influence on India is multifaceted, enhancing visibility for Indian companies among international investors and improving liquidity through increased trading volumes. Such dynamics are vital for attracting continued foreign investment into India’s equity markets.
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Potential new entrants to MSCI Global Standard indexes list
For the May 2024 MSCI Index review, significant shifts are anticipated. Major stocks like Indus Towers, Phoenix Mills, PB Fintech, Sundaram Finance, and Torrent Pharma are poised for inclusion in the Standard Index, potentially drawing substantial inflows. Additionally, potential entries into the Small-cap Index include Waaree Renewables, Vedant Fashions, R R Kabel, and Sanghvi Movers.
Here is an overview of the potential new entrants to the MSCI Global Standard Index in the upcoming August rejig:
- Vodafone Idea: This telecom giant is poised for inclusion, potentially attracting ₹233 million in inflows, according to estimates by Nuvama Institutional Equities.
- Oberoi Realty: A leading real estate developer that might see up to ₹136-137 million in fresh inflows if it joins the index, pending a price increase of up to 10%.
- Zydus Lifesciences: Specialising in pharmaceuticals, Zydus is another candidate requiring up to a 10% price rise to qualify for inclusion, with similar inflow projections as Oberoi Realty.
- Prestige Estates: This real estate firm is also on the cusp of inclusion, potentially drawing in ₹136-137 million, conditioned on a necessary price uptick.
- Thermax: An engineering company focusing on energy and environment sectors, projected to attract ₹130 million if it makes the cut.
- Nykaa (FSN E-Commerce Ventures): Known for its beauty and wellness retail, it could see inflows of ₹127 million if Nykaa share price rises up to a 10%.
- Alkem Laboratories: A major player in the pharmaceutical industry, likely to draw ₹126 million if included.
- Steel Authority of India (SAIL): A leading steel-making company expected to attract ₹124 million in inflows with its addition to the index if SAIL share price makes the cut.
Except for Vodafone Idea share price, all other seven stocks require a price increase of up to 10% to qualify for inclusion in the MSCI Global Standard index.
A 10%–20% price increase is necessary for additional stocks, such as United Breweries, ACC, Oil India, and Oracle Financial Services Software, to be eligible for MSCI inclusion. Furthermore, for Schaeffler India to be taken into consideration, there must be a more significant price increase of above 20%.
Each of these companies is being considered for inclusion based on their market performance, liquidity, and the potential to meet MSCI’s criteria by the third week of July, with the official MSCI announcement anticipated on August 13.
Bottomline
The MSCI Global Standard index plays a pivotal role in shaping global investment patterns, particularly highlighting the significant influence on companies awaiting potential inclusion. As these companies prepare for adjustments and meet the rigorous criteria, their market performance is keenly observed. This process underscores the profound interconnectedness of financial markets worldwide.
