Mumbai : Four Indian companies will enter the Morgan Stanley Capital International (MSCI) Global Standard Index from September 1, putting Laurus Labs, Lenskart, Adani Energy Solutions and Groww on the radar of funds that track the benchmark.
India’s representation in the index will rise from 165 to 166 companies after the August review, while the country’s weight will increase from 11.8% to 11.9%.
Three companies Balkrishna Industries, SBI Cards and Payment Services and Astral will move out of the index.
The estimated buying interest from passive funds is substantial.
Laurus Labs could receive about $598 million of passive inflows, the largest estimated amount among the four additions. Lenskart could attract around $352 million, while Adani Energy Solutions and Groww could see about $310 million and $256 million, respectively.
Together, the four stocks could therefore see roughly $1.5 billion in potential passive inflows linked to the reshuffle, based on market estimates reported after the MSCI review.
The actual amount of buying can differ from estimates because funds do not all track MSCI in exactly the same way. Some investors also use the index as a benchmark rather than mechanically holding every constituent.
The index change can nevertheless create additional demand around the effective date as portfolio managers adjust their holdings.
Laurus Labs’ inclusion is particularly notable because the Hyderabad-based pharmaceutical company has expanded rapidly in recent years, with its business spanning active pharmaceutical ingredients, generic formulations and contract development and manufacturing.
Lenskart, the eyewear retailer, is another recent addition to India’s listed large-cap universe. Its inclusion comes as India’s consumer and technology-linked companies gain greater representation in international equity benchmarks.
Adani Energy Solutions, which operates electricity transmission and distribution businesses, brings another infrastructure and utilities company into the index.
Groww is the fourth addition. The Bengaluru-based financial technology company operates an investment platform used by retail investors for products including mutual funds and equities.
The three removals will work in the opposite direction. Funds tracking the MSCI Global Standard Index may reduce their exposure to Balkrishna Industries, SBI Cards and Astral as the changes take effect. The reshuffle also illustrates why index providers can influence individual stocks even when there has been no major change in a company’s earnings or business operations.
An MSCI decision does not change a company’s fundamentals. It changes where the stock sits within an investment benchmark, which can affect the pool of institutional money available to it. There can also be a difference between the immediate market reaction and the longer-term effect. Investors may buy or sell shares ahead of the effective date in anticipation of index-related flows, while some of the expected demand may already be reflected in prices.
India’s increased weight in the MSCI Global Standard Index is also relevant beyond the four stocks. The country’s weight will rise to 11.9%, reflecting India’s growing representation in the global equity market. The change is small in percentage terms, but even a modest increase can translate into significant flows because the underlying global funds track very large pools of capital.
The September 1 adjustment will therefore be watched not only by shareholders of the four incoming companies, but also by investors in the three stocks leaving the index.
To clear confusion for retail investors, however, an MSCI inclusion by itself is not a reason to buy a stock. The additional demand can support prices around a rebalancing, but the company’s earnings, valuation, debt, cash flows and future growth remain separate questions.
The MSCI reshuffle changes the flow of benchmark-linked money. It does not change the underlying businesses.
