MSCI Reclassification To Drive Significant Passive Flows For Federal Bank, MCX, NALCO, and Others

The changes in the MSCI Global Standard Index review will take effect from Friday, May 29, leading to anticipated passive funds flowing in and out of several Indian stocks.

Federal Bank, Multi Commodity Exchange of India (MCX), NALCO and Indian Bank will be added to the MSCI Global Standard Index, while Hyundai Motor India, Jubilant FoodWorks, Kalyan Jewellers India and Rail Vikas Nigam Ltd (RVNL) will be removed from the index.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

The rebalancing is expected to result in sizeable fund movements as global passive funds aligned to MSCI benchmarks adjust their portfolios.

Federal Bank, MCX May See Strong Inflows

Based on the estimates provided by Nuvama Alternative & Quantitative Research, the possible inflows into Federal Bank after its addition to the index could be as much as $483 million. 

MCX could see an inflow of almost $362 million, whereas NALCO might receive about $328 million. Indian Bank could attract approximately $206 million.

Apart from fresh inclusions, some stocks are also expected to benefit from an increase in their index weightage.

Adani Power might receive an inflow of nearly $60.8 million, while Bharat Petroleum Corporation Ltd (BPCL) can have an inflow of around $41.9 million. The parent company of Nykaa, i.e., FSN E-Commerce Ventures, might receive an inflow of around $24.5 million. Trent and Oracle Financial Services Software can have an inflow due to weight adjustment.

Hyundai Motor India and RVNL Face Passive Outflows

The stocks which will be removed from the index list in MSCI Global Standard Index might face passive outflows.

Outflows from Hyundai Motor India are estimated to be at nearly $277.8 million, while Jubilant FoodWorks might face outflows of around $150.7 million. In addition, outflows from Kalyan Jewellers India and RVNL will be around $130.5 million and $117.9 million, respectively.

Weight Reductions To Impact Large-Cap Stocks

Several large-cap stocks are also expected to witness outflows because of reduced weightage in the index.
Bajaj Finance could see outflows of nearly $204 million, while Hindustan Unilever may face estimated outflows of about $194 million.

TCS, Infosys and UltraTech Cement are likely to witness outflows ranging between $125 million and $140 million. ONGC, Hindustan Aeronautics, Coal India, Mahindra & Mahindra and Nestle India are also expected to face passive selling pressure.

Nuvama Alternative & Quantitative Research estimates that several other stocks, including Power Grid, Cipla, Sun Pharma, Torrent Pharmaceuticals and DLF, could also witness lower weightage and resulting outflows during the MSCI adjustment process.

The MSCI rebalancing is closely tracked by market participants as passive institutional funds typically realign their portfolios on the effective date of index changes.