India likely to reduce weightage in the MSCI EM Index by the End of the

Year!!
MSCI today announced that they will bring about certain changes in the MSCI Emerging Markets
Index, and that is likely to impact Indian Financial Markets. These changes may bring a fall in India’s
weightage in the index by almost 1% or more. And this might result in heavy outflows of about $2-
3 billion from the markets.

Major factors that can result to India’s fall in the MSCI weightage are:

1. Raising the weightage of Chinese A-shares (Mainland Shares) by almost four times.
2. Addition of Argentina and Saudi Arabia in the Emerging Markets Index from Frontier
Markets and Standalone Markets respectively.
3. Modification in weightage calculation methodology.
4. Reduction in market value of Indian shares.

MSCI will increase the Chinese stocks’ weightage in three steps with 5% increments in May, August
and November. With this rise, China’s weightage will increase from 32.12% to 34.72%, which is a
rise of about 260 bps! India’s weightage will then possibly reduce from 8.45% to 8.13%, a fall of 32
bps.

This can hamper market value of lot of A group Indian stocks due to outflows of funds from the
category of stocks.

Market Analysts say that MSCI should raise FPI limits in various sectors for encouraging maximum
inflows of funds and restructure PSU holdings by transferring it to a trust.

India’s market capitalisation has declined by $90 million since the beginning of the year whereas
countries like China, Korea and Brazil are doing well. And such changes in the MSCI index may lead
to a negative impact on Indian markets!