Impact of MSCI New Weightages on Indian Large Cap Stocks

Recently, some changes have been made in the MSCI Emerging Markets Index. As a result of these changes, 10 large cap stocks can experience an outflow of Foreign Institutional Investors (FII’s) in the coming 6-9 months.

What are emerging markets?

The concept of emerging market was first used in 1980. This concept or term was introduced by the World Bank. Initially, World Bank recognized it as Third World Countries. Later on, Third World Countries came to be known as Emerging Markets. There are 96 countries in the emerging market.

about MSCI emerging market index

The MSCI Emerging Markets Index was launched on Jan 01, 2001. The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. With 1,125 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

Detailed Review E-Books by Yadnya

MSCI stands for Morgan Stanley Capital International (MSCI) indexes. MSCI developed or innovated this concept of emerging markets. MSCI has only included 24 of the 96 countries in the emerging markets. The countries in MSCI’s emerging markets are Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

So, MSCI gives specific weightages to different countries and there have been changes in these weightages. Let’s have a look at these weightages and what changes there are going to be:

FII Weightage of Different Countries Given by MSCI

Now, many of the active and passive funds look at the MSCI Emerging Market Index to take allocations similarly. Due to this there can be huge impact on certain stocks. If MSCI Emerging Market Index increases the allocation to a stock its demand and therefore share can rise and Vice Versa.

impact on 10 indian large cap stocks

These stocks can be impacted by the changes in the MSCI Emerging Market Index and also experience outflow. These 10 stocks are as follows: –

10 Large Cap Stocks which can see FII Sell off
  1. Reliance Industries
    1. Old Weightage – 0.92%
    2. New Weightage – 0.90%
    3. Thus, Reliance Industries can experience of around Rs. 3,000 Cr in the coming 6-9 months.
  2. HDFC Ltd.
    1. Old Weightage – 0.79%
    2. New Weightage – 0.77%
    3. Outflow amount – Rs. 2,500 Cr
  3. Infosys
    1. Old Weightage – 0.69%
    2. New Weightage – 0.67%
    3. Outflow amount – Rs. 2,200 Cr
  4. Tata Consultancy Services (TCS)
    1. Old Weightage – 0.49%
    2. New Weightage – 0.48%
    3. Outflow amount – Rs. 1,500 Cr
  5. Axis Bank
    1. Old Weightage – 0.34%
    2. New Weightage – 0.33%
    3. Outflow amount – Rs. 1,100 Cr
  • HUL
    • Old Weightage – 0.31%
    • New Weightage – 0.30%
    • Outflow amount – Rs. 980 Cr
  • ITC
    • Old Weightage – 0.25%
    • New Weightage – 0.24%
    • Outflow amount – Rs. 800 Cr
  • ICICI Bank
    • Old Weightage – 0.2%
    • New Weightage – 0.21%
    • Outflow amount – Rs. 700 Cr
  • Maruti Suzuki
    • Old Weightage – 0.19%
    • New Weightage – 0.18%
    • Outflow amount – Rs. 600 Cr
  • L&T
    • Old Weightage – 0.165%
    • New Weightage – 0.16%
    • Outflow amount – Rs. 500 Cr

This does not mean that these stock or bad that this outflow will create problems. The impact of changes is not going to be immediate; it is going to step by step in the intervals of 3 months.

summary

  • The changes in the MSCI Emerging Market Index will take place in the coming 6-9 months in the interval of 3 months.
  • The impact will not be severe, with only some fluctuations of these stocks.
  • This may provide investors with nice entry levels for them to make investment in these stocks.

notes :

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that these are bad companies, or the stocks of these companies are bad.
  • We are also not suggesting anyone to immediately go and buy these stocks or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.