Adani Group to SBI Cards: Stocks that Will See the Highest Inflows After MSCI Rejig

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  • May 13, 2021 - Adani Group to SBI Cards: Stocks that Will See the Highest Inflows After MSCI Rejig

Adani Group to SBI Cards: Stocks that Will See the Highest Inflows After MSCI Rejig

May 13, 2021

Earlier this week, global index services provider Morgan Stanley Capital International (MSCI) announced multiple changes to its MSCI India index.

The MSCI index is tracked widely by global investors as many global asset management firms, foreign pension funds, sovereign wealth funds and the like, use its indexes for the basis of deciding their weights in countries and individual companies.

Adani Enterprises, Adani Total Gas, Adani Transmission, Bharat Electronics, Cholamandalam Investment and SBI Cards and Payment Services will be added to the MSCI India Index.

The half a dozen inclusions included three Adani group stocks. Billionaire Gautam Adani-controlled Adani Green Energy and Adani Ports are already part of the index.

On the other hand, Zee Entertainment will be the sole omission.

The half-yearly review of MSCI India index also saw exclusion of TVS Motor Company and Abbott India from the index and they have been included in the MSCI India Domestic Small Cap Index.

The changes will come into effect on the close of 27 May.

In a note, Morgan Stanley said India's weight will increase by 5 basis points to 9.74% in the MSCI Emerging Markets index with these changes.

What is MSCI EM Index?

The MSCI Emerging Markets (EM) index is an equity index created by Morgan Stanley to capture large- and mid-cap companies across 26 emerging market countries.

Launched in 2001, the index covers approximately 1,387 listed entities that account for 85% of the free float market capitalisation in each country.

Companies must satisfy certain minimum criteria relating to full market capitalisation, free-float market capitalisation, stock liquidity, and foreign inclusion factor, among others to be included in the index.

Is the MSCI Indexation Important?

The MSCI index is tracked widely by global investors. Many global asset management firms, foreign pension funds, sovereign wealth funds and the like, use these indexes as a basis for deciding their weights in countries and individual companies.

An increase in India's weight in the MSCI index can result in large capital inflows into the Indian share markets.

In anticipation of inflows, investors generally buy certain stocks, hoping to make quick profits.

Rs 100 bn Worth of Inflows

These changes are expected to result in flows of about Rs 100 bn into these stocks by end of this month.

As per reports, Adani Total Gas could see an inflow of Rs 23.4 bn while other two Adani group companies of Adani Enterprises, and Adani Transmission can see an inflow of about Rs 22.8 bn and Rs 20.9 bn, respectively.

SBI Cards, Cholamandalam Investment, and Bharat Electronics are expected to see an inflow of Rs 17.4 bn, Rs 14.3 bn and Rs 10.9 bn, respectively.

Meanwhile, Zee Entertainment could see outflows to the tune of Rs 10 bn.

Stocks Included in MSCI India Domestic Smallcap Index

Besides Zee, the half-yearly review of MSCI India index saw the exclusion of TVS Motors and Abbott India. These stocks have been included in the MSCI India Domestic Smallcap Index.

In all, 34 stocks were included in the MSCI India Domestic Smallcap Index while five have been excluded.

Among the inclusion were Alok Industries, Balaji Amines, Burger King, Canara Bank, CG Power, CAMS, EPL, Happiest Minds, IRCTC, Indigo Paints, KPIT Tech, Intellect Design, Max Healthcare, Nagarjuna Construction, Oracle Financial, Poly Medicure, Prism Johnson, Route Mobile, Sequent Scientific, Shriram City Union, SKF India, Solara Active Pharma, Sumitomo Chem, Sun TV Network, Supreme Industries, Supreme Petrochem, Trent, UTI Asset Management, Vardhman Textiles, and VST Industries.

The exclusions include Adani Total Gas, Cholamandalam Investment, Hemisphere Properties, KRBL, and Mishra Dhatun Nigam.

Reaction to the News

The inclusion news did not have much impact on the companies' share price yesterday.

Shares of Adani Enterprises and Adani Total Gas slipped 1% while Adani Transmission ended marginally higher.

SBI Card, too, ended marginally higher while Bharat Electronics slipped 1%. Cholamandalam Investment slumped 5%.

The stock markets seem to have factored in the above news as all stocks included are significantly up over the past 6 months.

Company 1 Month Returns 3 Month Returns 6 Month Returns
Adani Enterprises 19% 79% 251%
Adani Total Gas 33% 243% 446%
Adani Transmission 30% 92% 269%
Bharat Electronics 20% 8% 56%
Cholamandalam Investment 3% 12% 65%
SBI Cards 9% -5% 25%
Data Source: Equitymaster

Investors will be keenly tracking these shares over the coming weeks. It would be interesting to see how they perform.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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