More FII inflows for India after Vanguard shift

Move from MSCI to FTSE will lead to further flows by $1-1.5 billion in CY 13, others may follow, say experts

Indian stock markets are set to get additional inflows – up to $1.5 billion – from global exchange-traded funds (ETFS). Vanguard Group, US’s largest fund company, decided yesterday to change its benchmark – from MSCI to FTSE – for 22 of its index funds from calendar year 2013.

These include six international ETFs.

Country	MSCI EM Weight	FTSE EM Weight	Weight Difference	Indexer Flows ($ mn)
Brazil	12.67%	16.16%	3.49%	$2,022.85
South Africa	7.82%	10.50%	2.68%	$1,553.76
India	7.05%	9.64%	2.59%	$1,501.68
Taiwan	11.01%	13.09%	2.08%	$1,204.14
Malaysia	3.60%	4.85%	1.25%	$722.07
Mexico	4.97%	5.96%	0.99%	$574.02
Russia	6.20%	6.94%	0.75%	$431.87
Chile	1.89%	2.46%	0.57%	$331.61
Indonesia	2.69%	3.20%	0.51%	$297.94
Thailand	2.21%	2.61%	0.40%	$231.95
Source: J P Morgan

With the movement from MSCI to FTSE, India will become a beneficiary as it is considered an emerging market by Vanguard. Said Vinod Sharma, “This will mean higher weight for India, as South Korea is considered a developed market by FTSE and will not find a place in the allocations.”

While Vanguard’s decision was taken to reduce costs of investment by bringing down the key expense of investing, the fee paid to firms that license benchmarks like MSCI and FTSE. This exercise will help Vanguard investors save as much as half and trillion dollars.

But, the exercise by default, will benefit a number of emerging markets. India will be the third highest beneficiary from this move after Brazil and South Africa, said a report by J P Morgan. South Korea and China stand to lose the most from this exercise at $ 9 billion and $370 million.

Stocks, which are expected to benefit the most from this rejig include, ITC ($344 million), Infosys ($ 146 million), ONGC ($ 122 million), RIL ($100 million) and Bharti ($ 86 million).