India to see $2.5-billion passive FPI flows after MSCI rejig

India will see upwards of $2.5 billion in passive FPI flows after a rejig of MSCI indices this month, with the country’s representation in the MSCI EM Index set to inch closer to 19 per cent from 18.3 per cent currently.

With 13 inclusions and 3 exclusions, the net stock count post-rejig will be 146 for India in the MSCI Standard/EM Index, according to Nuvama Alternative & Quantitative Research. Additionally, there will be a net inclusion of 14 stocks in the Smallcap Index, bringing India’s total stock count in the small-cap index to 497. The adjustments are slated for May 31

Paytm parent One97 Communications has been excluded from the Global Standard index while PB Fintech, Sundaram Finance, Mankind Pharma andJSW Energy have bagged an entry. Stocks like Zomato, AU Small Finance and Vedanta have seen an increase in weightage.

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“Our market performance over the past year and several new-listings have helped India gain heft in MSCI indices. The passive flows consequent to India’s increased weightage will partly offset the outflows we are seeing from active funds in recent times,” said UR Bhat, Director, Alphaniti Fintech.

The Nifty has returned 21.4 per cent in the last year, while the Nifty Midcap 100 has gained 55 per cent. Relative underperformance by other EM packs, especially China, has also helped India’s cause. The Shanghai Composite index has slid over 5 per cent in the past year.

India’s weightage in the MSCI EM index stood at 13 per cent in the beginning of last year, behind Taiwan (14.4 per cent) and China (33.5 per cent). The weightage had remained steady at around 8 per cent from 2015 to October 2020, implying that it has more than doubled in the last three-and-a-half years.

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Robust show

“The robust performance by Indian equities, particularly in the midcap segment, has led to numerous inclusions in every review. If steady FPI flows resume, there is potential for India to surpass a 20 per cent weightage in the MSCI EM Index by second half of this year,” said Abhilash Pagaria, Head - Nuvama Alternative & Quantitative Research.

FPIs have pulled out $2.7 billion from Indian equities this year.