IndusInd Bank likely to get added to MSCI during Aug rebalancing exercise

IndusInd Bank is likely to get added to the MSCI India Index during the rebalancing exercise in August following a sharp increase in the investment legroom for foreign portfolio investors (FPIs). The addition will be a boost for the private sector lender’s stock price as it could result in inflows of over $300 million (Rs 2,500 crore).

Foreign room in Indusind Bank has increased from just 1.2 per cent in December 2020 to 14.5 per cent in March 2023. “An increase in foreign room to 15 per cent at the end of June could result in IndusInd Bank being added to the MSCI India Index at the August quarterly index review. If added to the index, a limited investability factor (LIF) of 0.5 will be applied to the stock and the passive buying will be 6 times average daily volumes and 15 times delivery volume,” said Periscope Analytics' Brian Freitas, who publishes on Smartkarma.

For the FPI room to hit the desired 15 per cent threshold, net foreign selling of 2.87 million shares will be required, he said.

If the foreign room is between 15 per cent and 25 per cent, MSCI assigns LIF of 0.5 per cent (partial inclusion). If the foreign room is higher than 25 per cent, the LIF is 1 (full inclusion).

IndusInd Bank was removed from the MSCI India Index at the February 2012 quarterly index review following a drop in foreign room.

Shares of IndusInd saw a big drop during the Covid-19 selloff in March 2020. The stock is currently nearly half its pre-pandemic levels.

Over the past two years, IndusInd Bank has underperformed ICICI Bank and Axis Bank.

As a result, IndusInd Bank is available cheaper compared to private sector peers. It trades at a price-to-book value of 1.6 times, while HDFC Bank, ICICI Bank, and Kotak Mahindra Bank trade at more than 3x. Axis Bank trades at about 2x, as per Freitas.