No immediate benefit for India, other EMs from Russia's MSCI, FTSE deletion

Global index providers MSCI and FTSE have both removed Russia from their indices. Typically, such a move would have redirected flows from Russia to other countries, including India. In this instance, other markets will not see any inflows as fund managers will not be able to sell their Russia assets immediately due to various curbs.

However, Indian and other emerging markets (EMs) will see greater incremental flows from passive funds tracking indices such as the MSCI EM.

IIFL expects India’s weightage in the MSCI EM index to increase by 30-35 basis points (bps) on account of Russia’s removal. Edelweiss expects an increase of about 15-20 bps.

MSCI has said it will reclassify Russia from EM to standalone market with effect from March 9. The move follows feedback from market participants amid deterioration in Russia’s market accessibility due to factors such as ban on sale of securities, market shutdown in Russia and extreme volatility in the ruble.

Meanwhile, FTSE too has announced the deletion of Russia from all FTSE Russell Equity Indices. A similar announcement from S&P Dow Jones too is expected soon.

“There will be ZERO flows to any markets in the next few days from the MSCI and FTSE deletions. Since funds (passive and active) cannot sell any Russian stocks, nor can they exchange Rubles for US$, they will not have the cash to buy stocks in any other country. Nor do they need to for now since all the Russia listed stocks will be deleted at a price of zero,” said analyst Brian Freitas, who publishes on Smartkarma in a note.