The first round of changes in the Morgan Stanley Capital International (MSCI) index, which comes into effect after trading hours tomorrow, is unlikely to have any immediate adverse impact on the bourses, feel fund managers.
"The changes announced by MSCI in its weightage have already been factored in and the re-balancing of portfolios was mostly done in November itself," a fund manager with a European fund house said.
The recast, which was announced in October, is expected to reduce India's weighting in the MSCI Emerging Markets Free Index by 0.93 per cent in the first tranche against the earlier estimated 3.01 per cent.
The shift to free float, which bases a stock's weighting in the index on how many shares are freely available for foreign investors to buy, was first announced in May and revised in October.
This gave a much-needed cushion period to re-balance portfolios, analysts said. The second stage of free float for the index will be effective from May 30, 2002.
The government had announced slew of measures to pep up the sagging capital market and as part of which, the Reserve Bank of India in September, raised the ceiling of investment by foreign institutional investors and bringing them on par with foreign direct investment (FDI) investment limit. As a result of the FDI-FII investment fungibility, foreign portfolio investors can buy in domestic companies to between 74 per cent and 100 per cent in most sectors from 49 percent.
Analysts also said that the MSCI changes would not impact Indian shares because of the strategy adopted by foreign investors in emerging markets. Generally, the foreign portfolio investors adopt specific investment strategy in developing economies against benchmarking of their portfolios to indexes, a fund manager said.
Another fund manager said the MSCI index is grossly overplayed. "Being a benchmark index, most FII fund managers could be taking a view. However, among the Asian markets, India's weightage may continue to remain bullish. Therefore, it doesn't prevent a fund manager from increasing his exposure to India over and above the MSCI index," he said.
Various India-dedicated funds follow domestic indices such as the S&P CNX Nifty, Sensex, BSE-200 and others. MSCI is usually followed by regional funds and their total investments are only 20-22 per cent of the FIIs' total funds. Besides, they are in any case underweight on the Indian markets, he said.
