Kotak Mahindra Bank may get added to FTSE index in March semi-annual recast

Sustained selling by FPIs increases investment legroom to 22% at the end of September 2022 quarter

A sustained slide in foreign portfolio investor (FPI) shareholding in private sector lender Kotak Mahindra Bank (Kotak Bank) has paved the way for the stock’s entry into the Financial Times Stock Exchange (FTSE) All-World Index.

Analysts expect the stock to get added to the FTSE index during the semi-annual index review (SAIR) in March.

Between December 2020 and September this year, FPI holding in the private sector lender had declined from 45.09 per cent to 39.26 per cent, reveals BSE data.

Currently, the investment legroom for FPIs is about 22 per cent. The minimum foreign room required for FTSE inclusion is 20 per cent.

Prior to September 2014, Kotak Bank was part of the FTSE All-World Index. However, it got removed from the index after the introduction of a minimum headroom rule in 2014.

“Kotak Bank foreign room as on September 30 is 22.07 per cent and is quite safely above the minimum requirement of 20 per cent. The next rebalance when Kotak Bank will be eligible for inclusion in the FTSE All-World Index is the March 2023 SAIR. With a full market capitalisation (m-cap) of $45.68 billion and an investable m-cap of $25.12 billion, we expect Kotak Bank to be included in the FTSE All-World Index at the close of trading on March 17,” said analyst Brian Freitas, founder, Periscope Analytics.

Freitas added that the stock will be initially added to the index at a minimum free-float of 5 per cent, resulting in passive investor buying worth $87 million.

If the stock continues to maintain the minimum 20-per cent FPI investment legroom, “the investability weight will be increased at subsequent reviews in increments of 5 per cent until the foreign investment limit is reached”, he said.

Kotak Bank is already part of the Morgan Stanley Capital International (MSCI) India Index, however, with a limited investability factor of 0.5 per cent. This is because the FPI investment legroom is below the 25 per cent threshold set by MSCI.

If the FPI shareholding continues to slide, Kotak Bank’s weighting in the MSCI index, too, could increase.

In the April-June quarter, the FPI investment legroom in Kotak Bank had increased to 20.01 per cent. However, the stock wasn’t added to the FTSE index during the

previous rebalancing since the shareholding pattern was declared after the cut-off date.

Shares of Kotak Bank last closed at Rs 1,847 on the BSE.

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd