Upcoming MSCI India Index Changes: Six Winning Stocks and Two Losers 1

These stocks could be winners

The MSCI India Index (INDA) is due for its semi-annual review in May. Morgan Stanley’s (MS) Head of India, Ridham Desai, discussed his views on likely changes in an interview recently.

Desai expects Indian Oil Corporation (IOC), Federal Bank (FEDERALBNK), Rural Electrification Corporation (RECLTD) and Petronet LNG (PETRONET) to be included in the index, while Container Corporation (CONCOR) and Divi’s Labs (DIVISLAB) could be removed. Further, he also expects weights allotted to two large cap stocks – ICICI Bank (IBN) and Grasim (GRASIM) to be increased in the MSCI Index.

Morgan Stanley believes weight for ICICI Bank to increase from 1.2% to 2.2% while that for Grasim India to increase to 1.3% from 0.9% currently. Grasim was added to the MSCI India Index in February 2017.

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Why it matters

Stocks that get included in the MSCI indices usually attract fund flows. There are passive funds that track these inclusions to keep tabs on overall market sentiment. Index weighting and composition is an important metric for investors as fund managers and foreign investors try to mimic the index when allocating their funds and building their portfolios.  Stocks that are included in the MSCI Index generally see higher allocation from foreign investors. The addition of stocks to major indices also increase their overall trading volumes and thereby their returns. Conversely, removal can lead to declines in the stock’s returns.

The MSCI India Index is composed of 76 large and mid-cap stocks and covers nearly 85% of the Indian Equity universe. It is tilted towards the financial sector and information technology sectors, with the two comprising 22.4% and 14.6% of the Index. Consumer discretionary, energy and materials sectors make up 13.1%, 11.1% and 9.8% of the index respectively.

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