MSCI India index rebalancing could stoke Rs 13,000-crore churn

Varun Beverages, Tube Investments, IHCL seen as potential inclusions

A handful of domestic stocks could see a churn to the tune of $1.6 billion (Rs 13,000 crore) on account of semi-annual index rebalancing (SAIR) of the MSCI India index. The rebalancing is scheduled to take place on Friday and the changes will come into effect after the close of trade on November 30.

According to analyst Brian Freitas of Periscope Analytics, who publishes on Smartkarma, about seven stocks are in the reckoning to get added to the index, which is tracked by funds with assets of around Rs 1 trillion. These include Varun Beverages, Tube Investments and Indian Hotels. Each of these stocks could see buying worth more than $200 million (more than Rs 1,600 crore) from passive trackers.

Meanwhile, Indraprastha Gas Limited and Biocon are seen as potential exclusions and these two stocks could see selling to the tune of $100 million (about Rs 800 crore).

Typically, the rebalancing of the MSCI India index tends to have a bearing on the stock prices of potential inclusion and exclusion candidates. This is true this time around as well.

“All the potential inclusions to the index are trading at or are near their highs with a few stocks breaking to new highs over the last few days. The potential deletions are trading near their lows and have massively underperformed the MSCI India index over the last year,” said Freitas in a note.

Furthermore, the foreign portfolio investor (FPI) shareholding has edged higher on expectations of inclusion in the MSCI India index. This indicates that savvy investors have already built pre-positions on these counters.