Confusion over MSCI weightage triggers volatility in Bharti Airtel

The stock recouped most of the day's losses after some brokerages pointed out that the reduction in weightage could be on account of an error in computation

Shares of Bharti Airtel witnessed wild swings on Thursday as confusion reigned over its weighting in the widely tracked MSCI India index. Initially, the stock fell more than 4 per cent after a sales note floated by brokerages showed that the global index provider had halved Airtel’s weighting on the MSCI India index from 3.68 per cent to 1.92 per cent during its August review. This reduction of 172 basis points (bps) in weighting would entail passive outflows between Rs 3,500 crore and Rs 3,800 crore, some analysts predicted.

The stock recouped most of the losses after some brokerages pointed out that the reduction could be on account of an error in computation. They said the weighting should have instead gone up as in January, when the company had increased the foreign portfolio investor (FPI) investment limit to 100 per cent. Some even speculated that the MSCI would restore the weighting, which could lead to a rebound in the stock.

However, sources said the index provider had acted based on the free-float available for FPIs based on data provided by National Securities Depository (NDSL), a firm that monitors FPI limits in listed stocks.

According to the depository firm’s website, FPIs can invest up to 49 per cent in Airtel under the automatic route and up to 100 per cent through the government route. MSCI only takes into account free-float under the automatic route as it is freely accessible. So was NSDL at fault for not updating the FPI limit to 100 per cent? Sources close to the company said that while Airtel has hiked the limit to 100 per cent in principle, it needs to address some issues on overseas investment limits in its subsidiaries before the changes come into effect.

 

 

“The company will have to sort out some issues pertaining to holdings in downstream subsidiaries before the 100 per cent FPI limit comes into play. This could take a few months. Until that time, the increased FPI limit will remain under the government approval route,” said a person with knowledge of the development.

“MSCI is aware of the government approval to increase the  foreign ownership limited of Bharti Airtel to 100 per cent, announced at the beginning of 2020. However, MSCI is not aware of any public information on the potential effective date of this change,” said MSCI in a email response.

Shares of Airtel ended at Rs 536.5 on Thursday, down 2 per cent. Apart from Airtel, ITC and Bajaj auto also saw reduction in their weighting in the MSCI India index by 29 bps and 13 bps, respectively, according to brokerages. Both the shares ended Thursday’s session in the red. 
 

With effect from April 1, the FPI investment legroom in several Indian stocks had risen after the government said sectoral limits will act as FPI limit. This move was aimed at increasing India’s weighting in global indices. 

However, MSCI and FTSE, the two main index providers, have said they will wait and watch how the new investment limits play out.