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Impact of MSCI India index rebalancing: What you need to know
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4 min read | Updated on July 04, 2024, 15:09 IST
SUMMARY
Market participants are always looking for triggers that can impact a stock price. One such trigger is the MSCI quarterly rebalancing. In this article, we go back to the last three such announcements to see the impact of this rebalancing on stock prices.
The MSCI India index measures the performance of the large and mid-cap segments of the Indian market.
MSCI recently rebalanced its India index, adding 13 stocks and deleting 3, bringing the total number of stocks to 146. This periodic adjustment can have significant implications for the stocks included or excluded from the index.
Let us understand what the MSCI Index is, its importance and how relevant the act of its recent rebalancing is for market participants.
What are the MSCI Indices and why do they matter?
Morgan Stanley Capital International (MSCI) - not related to Morgan Stanley anymore - is an American financial firm that provides indices among other services. It is a global leader, with about $15.6 trillion worth of equity assets benchmarked to more than 280,000 indices.
Why are these indices important?
They serve as benchmarks, allowing investors to compare their performance against a standardised measure. They serve as a basis for various financial products, including index funds and ETFs
What is the MSCI India Index?
The MSCI India Index measures the performance of the large and mid-cap segments of the Indian market. Previously comprising 136 constituents, the index covered approximately 85% of the Indian equity universe as of April 30, 2024.
How often does MSCI rebalance?
It is done every quarter and in February, May, August, and November.
Why is the rebalancing done?
To ensure they accurately represent the current market conditions, reflecting changes such as shifts in market capitalisation and weight of that stock in the index.
Why does it matter?
Similar to the NIFTY50, some funds track the MSCI India index. Any change in composition leads to managers changing their portfolios to match the MSCI India Index, inevitably causing some volatility.
Does it impact stocks?
The recent rebalancing activity on May 14, 2024, has led to certain additions (13) and deletions (3) in the MSCI India Index, taking the total count of companies in the index to 146. The complete list of additions and deletions is as follows:
Short-term Impact on stock prices
We go back to the last three such changes. Please note: Actual rebalance takes a couple of months to fructify. The table below is about the price change on week post the day of the announcement.
One-week percentage change in price due to rebalancing
| Stocks Added | May 21, 2024 | Stocks Added | Feb 19, 2024 | Stocks Added | Nov 21, 2023 |
|---|---|---|---|---|---|
| Solar Industries India | 9.9% | Punjab National Bank | 8.6% | Tata Motors | 4.4% |
| Thermax | 6.5% | GMR Airports Infra | 7.6% | Persistent Systems | 3.7% |
| Phoenix Mills | 5.3% | NMDC | 7.2% | Polycab India | 3.5% |
| PB Fintech | 4.6% | Bharat Heavy Electricals | 4.3% | One 97 Communications | 2.0% |
| Torrent Power | 4.2% | Union Bank Of India | 1.0% | Suzlon Energy Limited | 1.7% |
| NHPC | 4.2% | Macrotech Developers | 1.4% | ||
| Canara Bank | 2.5% | Tata Communications | 0.01% | ||
| JSW Energy | 0.7% | IndusInd Bank | -0.5% | ||
| Sundaram Finance | 0.6% | APL Apollo Tubes | -1.6% | ||
| Indus Towers | -0.1% | ||||
| Jindal Stainless | -1.4% | ||||
| Bosch | -3.1% | ||||
| Mankind Pharma | -7.3% | ||||
| Stocks Removed | |||||
| Indraprastha Gas | -0.8% | ||||
| Berger Paints India | -0.5% | ||||
| One 97 Communications | 3.4% |
Source: MSCI; investing.com
Conclusion
When a stock is added from the MSCI Index, it mostly experiences increased demand from global investors, leading to a rise in its price and vice versa. The analysis in the table above supports this analysis for the most part.
For anyone looking to make a trade, the MSCI index rebalancing could be a trigger to consider.
That said, there are definite exceptions as seen in the table above. This reiterates what we have said in the past: there are always more than one factors that impact the price of a stock. As such, holistic research is required before making any decisions.
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