MSCI rejig may raise India's global weight

MSCI, the global equity index purveyor, has put four country indices on a review list for possible reclassification. The review, to be formally announced the coming Tuesday, is expected to put MSCI Taiwan and MSCI Korea indices in the developed markets list and Qatar and UAE in the emerging markets category.

The potential reclassification of Korea and Taiwan, experts say, could translate into a higher weight for India, resulting in increased foreign institutional investor flows, as benchmarked funds realign their portfolios. A 116-basis points increase in weight could potentially translate to $1 billion inflows in September, when the next quarterly index review is scheduled, according to an industry analyst.

 

The emerging markets index has 21 countries. Eight are from Asia, including China, India and Indonesia, apart from Korea and Taiwan. There are Russia, the Czech Republic, Poland, Hungary and Turkey from Europe. Also, South Africa, Egypt and five Latin American countries, including Brazil, Mexico and Colombia. Korea had a weight of 14.66 per cent while Taiwan was represented at 11.51per cent  against Indias wieghtage of 7.29 per cent as per MSCI data for June 14, 2011.

Global funds benchmarked to the MSCI emerging markets index have aggregate assets under management of $209.4 billion, according to Bloomberg data. Funds linked to MSCI Indices have average assets under management (AUMs) of about $360 bn. The MSCI Developed Markets World Index is benchmarked by funds with aggregate assets of $9.18 bn, while World-ex US index benchmarked funds have an AUM of $11.84 bn.

The semi-annual equity indices review announced on May 16 saw the addition of six Indian scrips to the global standard emerging market index. These were Asian Paints, Bank of India, Dabur, Mundra Port and SEZ, Shriram Transport Finance and Titan Industries. The six scrips rose a little over 10 per cent on average after the announcement. Shriram Transport was listed among the largest additions to the index, with South African company Barloworld and Korea-based Kumho Petrochemical Co.

The MSCI global small-cap index saw 15 additions and 38 deletions, with the added scrips not demonstrating any clear trend in performance, unlike the outperformance of scrips added to the standard index. Returns after the announcement averaged about two per cent, but ranged between a 16 per cent rise for Pantaloon Retail and a 13 per cent dip for Jain Irrigation. The story was similar for deleted scrips, down about 1.5 per cent on average.