Biggest winners and losers in MSCI May-23 index review

So… MSCI rejig just happened

Morgan Stanley Capital International (MSCI), the investment research and indexing arm of Morgan Stanley, provided their latest index rejig for May 2023. MSCI has the most popular family of global indices and there are trillions of global passive monies riding on these indices. Companies that get listed on the MSCI index are generally in an advantageous position, given that the index is an international one, investors are more likely to invest in these companies. 

After all, passive investors tracking these indices, have to rejig their portfolios in sync with the MSCI changes. Those companies that either managed to get included or had their index weight augmented, can pat themselves on the back, as this guarantees them additional inflows. Which companies won, and who did not see the best of times in this rejig?

Companies that could lose in the rejig

Few of the key stocks that have been deleted from the MSCI index include Adani Transmission, Adani Total Gas, and Indus Towers. They go out of the MSCI Standard indices. The potential outflows due to this removal are estimated at $201 million, $186 million, and $84 million respectively, resulting in overall outflows of over $470 million. This will trigger selling by index funds and index ETFs which are benchmarked to these MSCI indices. That is not great news for the Adani group, which has already seen a value loss of over $120 billion on account of the Hindenburg report. The exit of these Adani shares from the MSCI was already expected and most traders had been preparing for fund outflows from these stocks.

In addition, there were also some notable exits from the MSCI Small Cap Index. In the May 2023 rejig of MSCI indices, the small cap indices saw the exit of stocks like Max Healthcare, Polycab India, Gillette India, PC Jewellers, Astec Lifescience, Dilip Buildcon, Radico Khaitan and Dhani Services. On the other hand, there were several prominent stocks which saw a reduction in the weightage in the MSCI principal indices. These include biggies like Reliance Industries, Infosys, ICICI Bank, JSW Steel, HDFC and Tata Consultancy Services. These stocks are likely to see potential outflows to the tune of close to $600 million combined. Most of these outflows would occur as a result of the portfolio readjustment affected by the passive funds indexed to these indices.

There were also several gainers from the rejig

The big names that made it to the principal MSCI index in the rejig include Hindustan Aeronautics Ltd (HAL) and Sona BLW Precision. Max Healthcare gets elevated from the small cap index to the main index. These 3 stocks are likely to see net inflows due to this inclusion of close to $670 million. In addition, the MSCI Small Cap Index will also see the addition of stocks like Bikaji Foods, ACE, KFIN Technologies, Ujjivan Small Finance Bank, Maharashtra Seamless, IRCON, RVNL, Religare Enterprises etc.

Large cap stocks that will see an increase in index weight include Maruti Suzuki, Zomato, Ultratech Cement and ONGC with combined inflows across these 4 stocks of $312 million. However, the biggest winner in this MSCI rejig story must be Kotak Mahindra Bank, which achieved the biggest weight increase. This likely to potentially result in inflows of over $810 million. This is due to the reduction of the foreign investor shareholding (Limited Investability Factor) in the bank, by about 147 basis points in the March quarter. This actually enabled the bank to open up the foreign room and increase its weight.

Content Source: Money Control