MSCI defers decision on upping India weight in index for the second time

In April, MSCI had said it will wait and see how the practical implementation of the new limits plays out before making any changes | Photo: Reuters
MSCI has deferred a decision on increasing India’s weighting in its global indices for the second time. “MSCI will defer until further notice potential increase in foreign ownership limits (FOL) resulting from the recently implemented relaxation of foreign portfolio investor (FPI) limit of Indian companies to the sectoral limit,” the index provider said.

The investment legroom for foreign investors in several Indian companies has gone up following the government’s decision to automatically treat the sectoral limit as the FPI limit. For instance, if the FPI investment limit in a company was set at 49 per cent, but the sectoral cap was 74 per cent, under the new framework that came into effect from April 1, the limit in such a company would increase to 74 per cent, unless the company decides to cap it lower.
Depository firms National Securities Depository (NSDL) and Central Depository Services (CDSL) have published the list of companies where there has been an increase in FPI investment legroom.

In April, MSCI had said that it will wait and see how the implementation of the new limits plays out before making changes.

The index provider on Tuesday said more clarity is required to understand the changes enacted. “The sectoral limits published by NSDL and CDSL are new and more time is required for market participants to test the disclosure mechanism. MSCI is awaiting further clarification on timeliness, quality and standardisation of the data provided by NSDL and CDSL before making related changes to the MSCI Indexes,” it said.
Market players said the list needs to be further simplified. MSCI has said market participants can provide their feedback on usability and timeliness of the data given by the depositories.

Increase in weighting in MSCI indices will result in billions of dollars of foreign flows into the domestic markets.

At present, the so-called foreign inclusion factor (FIF) for the Indian markets is low, given the low free-float market capitalisation compared to other global peers. Also, limited investment legroom in many large caps has limited India’s weighting in global indices. 

While India is among the top 10 markets globally in terms of full market cap, it ranks thirteenth in terms of free-float market cap.


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