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Why Do Changes In MSCI Index Matter To Indian Stocks?

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As part of its semi-annual index review, MSCI has made changes to its MSCI India index, which will come to effect from 26 November. This is a key benchmark index for India-focused overseas funds.

Why Do Changes In MSCI Index Matter To Indian Stocks?
 

While 7 stocks were added to the MSCI Global Standard Index, 4 deletions were made.

Additions:

  • Berger Paints
  • DLF
  • Colgate
  • HDFC AMC
  • ICICI Prudential Life
  • SBI Life
  • Siemens India

Deletions:

  • Vodafone Idea
  • Yes Bank
  • Indiabulls Housing Finance
  • Glenmark Pharma

Additions to MSCI India Domestic Index include Berger Paints, DLF, HDFC AMC, ICICI Prudential Life, Info Edge, SBI Life and Siemens India. On the other hand, deletions include BHEL, Glenmark Pharma, Indiabulls Housing, L&T Finance, Vodafone Idea and Yes Bank.

Changes to the MSCI Global Smallcap Index include additions of Brigade Enterprises, Galaxy Surfactants, Glenmark Pharma, Indiabulls Housing, Metropolis Healthcare, Navin Fluorine, Orient Electric, Polycab, Spandana Sphoorty, Sterling & Wilson, Vodafone Idea, Yes Bank, L&T Finance, Intellect Design Arena. Deletions include Arvind Limited, Care Ratings, CG Power, Cox & Kings, DHFL, Gayatri Projects, GFL, IFCI, IIFL Sec, Info Edge, Jagran Prakashan, Jain Irrigations, Magma Finance, Muthoot Finance, PC Jeweller, Reliance Capital, Reliance Infra, Sharda Crop, Suzlon, Time Technoplast and Whirlpool.

Why do these changes matter?

MSCI (Morgan Stanley Capital International) indices measure stock performance in a particular area and are often used as a base for exchange-traded-funds (ETFs). Investors invest in ETFs, and their investments reflect profits or losses made from changes in the stocks in the index it is based on.

Just like mutual funds, these indices are actively managed for best returns.

MSCI's India-based indices are aimed to include enough stocks to represent the Indian stock markets.

MSCI has many indices aimed to represented different markets, including a world index. These are reviewed quarterly and rebalanced twice a year to provide an efficient reflection of underlying equity markets that the index measures.

This gives MSCI indices the power to change the way certain stocks are perceived because, with every rebalancing, the ETF or mutual fund investing in the Indian markets will also have to buy or sell the stocks that have been added or removed, respectively, on the index for India. This will bring a rise or drop in the prices of the affected domestic stocks accordingly as funds buy or sell them to accommodate changes.

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