Limited impact on 8 stocks entering FTSE after rejig

NMDC's debut on a global index may help stock price

Any rejig in the global indices is always watched with keen interest by investors, as an increase in weightage of a market or inclusion of stocks in an index can mean higher allocations to these markets or stocks.

However, the recent rebalancing of the FTSE World Index and FTSE Emerging Market Index is unlikely to have a meaningful impact on India. The rebalance will push up this country's weightage in the emerging market index very marginally, as only eight new stocks have been added to the existing basket of 113 Indian stocks.

The eight new stocks to debut on the FTSE Emerging Market Index are YES Bank, NMDC, GlaxoSmithKline Consumer, Godrej Consumer, Wockhardt, United Breweries, Shree Cement and IndusInd Bank. Suzlon has been removed.

The weightage of Oil and Natural Gas Corporation, Reliance Industries and Tata Consultancy Services, all existing stocks, has been marginally raised. However, experts say fund managers have steadily increased their stakes in these companies and little headroom is left for any further increase.

For passive flows to increase to any market, the overall weightage of the market has to move up substantially. India's weightage is about 8.4 per cent in the FTSE Global Equity Index Series and is distributed over 113 stocks (120 after recent inclusions). Rajesh Cheruvu, chief investment officer of RBS Private Banking, believes the move will not have a significant impact on the new stocks, as these enjoy very low weightage in the Index. Also, equity strategists say most global fund managers follow the MSCI indices and only a few emerging market exchange-traded funds follow the FTSE indices.

Rakesh Arora, managing director and head of research at Macquarie Capital Securities, says allocations would increase through incremental buying if India's overall weightage has gone up.

However, NMDC is an interesting case. This is the first time the stock has entered any global index and the recent increase in the free float would also attract fund managers. Jayant Manglik, president, Religare Securities, says the inclusion of eight new stocks is a feather in their cap. However, a lot of the buying would be short-term, as it would happen shortly after the announcement but, subsequently, the stock's fundamentals would come into play.