Will India benefit from Russia's removal from global indices?

The Ukraine-Russia conflict is creating havoc not just on field but across financial markets as well. Equities, including Russian stocks, have cracked on the bourses and energy prices are flaring up on fears of choked supply chains.
While this may have already eroded billions of dollars of investor wealth, the crisis is far from over.   
 
Global index providers MSCI and FTSE, for instance, are proposing removal of Russia from their indices.

Earlier this week, MSCI sought fund managers’ feedback on the current level of accessibility and investability of the Russian equity market.
It has also sought feedback from market participants on the appropriate treatment of the Russian equity market within MSCI indices.
This includes the potential reclassification of the MSCI Russia Indexes from Emerging Markets to Standalone Markets status.

Previously, FTSE had issued a note highlighting concerns around Russia.
Early estimates suggest that removal of Russia from these two indices may lead to billions of dollars of outflows from the country, with some portion getting into other emerging markets.
 
A back of the envelop calculation by IIFL Institutional Equities said that if these FPI investments are directed towards India, there could be aggregate inflow of over two billion dollars.
This is because India’s weightage in the MSCI EM and other widely-tracked indices will edge higher.

As of Feb 25^th, Russia’s MSCI EM weightage stood at 2.66%, eighth highest.
Meanwhile, China and Taiwan top the list with weightage 29.55% and 15.86%. India has third weightage at 12.25%.

To be sure, these calculations are based on last week’s weightages. The current inflows, however, may be lower than this as the on-going market rout might have reduced Russia’s weightage.
Edelweiss Securities expects the inflows to be distributed in index heavyweights like Reliance Industries, Infosys, HDFC, ICICI Bank and TCS.
 
Therefore, even is MSCI and FTSE decide to remove Russia from their global coverage, the step may only restrict FPI selling in India.
Investors will, therefore, keep a close watch on this development on Thursday.
That apart, news around Ukraine-Russia conflict, global energy prices, weekly F&O expiry, Services PMI data and stock-specific move will sway the indices today.

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