Morgan Stanley sees $2.5 billion inflows in these stocks after MSCI index revision

NEW DELHI: Kotak Mahindra Bank, PI Industries and Ipca Laboratories are some of the top names that may be included in MSCI indices, leading to massive inflows to the tune of $2.5 billion via passive funds.

The current constituents of the indices will also see an increase in weight in November 2020 revision of indices by MSCI, said Morgan Stanley. This will be due to MSCI’s implementation of changes in Foreign Ownership Limits (FOL) in the MSCI Global Indices.

“MSCI India's weight in MSCI Emerging Market Index will increase to 8.7 per cent (due to weight increases for current constituents) and 8.8 per cent (due to new additions) from the current level of 8.1 per cent, resulting in passive inflows of $1.93 billion and $0.6 billion, respectively,” said Morgan Stanley.

In its last review, the confusion of FOL led to an investor furore as the weight of Bharti Airtel was reduced apparently due to confusion over data reported by NSDL. But Indian depositories recently addressed the concerns on the timeliness, quality and standardisation of the data.

According to Morgan Stanley, the biggest beneficiary of synchronisation of the rules will be Asian Paints, Bajaj Finance, Britannia, L&T and Nestle India that can see inflows in the range of $100-$210 million. Apart from these Tech Mahindra, NTPC, Divi’s Labs, Cipla, Titan, Maruti Suzuki and Tata Steel may also see inflows of upwards of $77 million.

Besides these, the broker expects MSCI to include Kotak Mahindra Bank, PI Industries and Ipca Labs, which will result in inflows of $502 million, $99 million and $102 million, respectively.

Kotak Mahindra Bank is the top largecap gainer on Tuesday, surging nearly 10 per cent. The lender also announced superior Q2 earnings, beating Street estimates by a wide margin. Ipca Labs was up 5 per cent and PI Industries about 0.5 per cent.

MSCI is due to announce the results of its semiannual index review on the morning of Nov 11, including a list of stock additions and removals along with changes in weightings. All changes will be effective December 1.

“Stocks that are being included tend to outperform in the run-up to their inclusion in key indices. Further, we observe that MSCI India index tends to outperform before and post the announcement,” said analysts at Morgan Stanley.

The analysts also believe there is a high likelihood of inclusion of Apollo Hospitals (potential inflows at $135 million) and L&T Infotech ($85 million); while medium likelihood for Muthoot Finance ($81 million).

They also said there is a medium to high likelihood of inclusion of LIC Housing Finance ($57 million), REC ($58 million) and Shriram Transport Finance ($79 million).

After the revision, sector-wise IT and Energy will see the biggest drop in weightage in MSCI indices while materials will see the biggest increase in weightage.