India loses weight in MSCI India Index

India’s weight in the Morgan Stanley Capital International (MSCI) India Index, popularly known as the MSCI India Index, has declined marginally by 9 basis points, largely due to changes in the constituents. The MSCI India Index will now have 58 stocks. It has 59 stocks at present.

Morgan Stanley has announced changes to the MSCI India Index under its May 2009 Semi Annual Index Review (SAIR). The MSCI India Index has added three new stocks, Idea Cellular, Bajaj Auto and United Phosphorus, which have a combined weight of 1.30 per cent. Essar Oil, Unitech, Tata Communications and Indian Hotels, having a weight of 1.60 per cent, will be out of the index from May 29.
 

TOP 10 WEIGHTAGE IN MSCI INDIA INDEX
Company	New Wtg	% Chg
Reliance Ind	17.34%	0.11%
Infosys Tech	10.29%	0.07%
ICICI Bank	6.11%	0.04%
HDFC	5.46%	0.03%
HDFC Bank	4.64%	-0.24%
ONGC	3.18%	0.02%
ITC	2.94%	0.02%
BHEL	2.79%	0.02%
Hind Unilever	2.76%	0.02%
Larsen & Toubro	2.75%	0.02%
Source: MSCI Barra, J P Morgan

 

Based on these changes, India’s country weight in the MSCI EM (emerging markets) Index will come down marginally from 6.47 per cent to 6.36 per cent. The 12 constituents in the MSCI India index have lost weight by 1.48 per cent while 30 have seen an increase of 1.79 per cent. The incoming constituents will have a weight of 1.30 per cent while the four outgoing stocks had a weight of 1.60 per cent.

JP Morgan regional strategy team estimates the size of the MSCI Emerging Market-based passive funds at $33.9 billion. This would imply an outflow of $35 million on account of adjustment for India’s country weight reduction. JP Morgan analysts indicate that while the impact of the passive fund readjustments will be limited, adjustment from active funds managers could have a meaningful impact, especially on the stock prices of new additions and deletions as well as companies with large changes in the index weight.

The eligibility for inclusion in the index and in determining an affected constituent’s weight, according to MSCI Barra Index Research, is foreign investors’ holding. Securities with less than 25 per cent foreign room are typically not eligible for inclusion. However, current index constituents that experience a decline of foreign room may continue to be included in the index to avoid unnecessary turnover.

For cases where the foreign room is significantly below 25 per cent, MSCI Barra may consider the application of Limited Investability Factor (LIF) to reduce the weight of the security in the index. A LIF of 0.5 has been added to Grasim Industries of India in this review as a result of the above rule.