MSCI Index

What is in the News ?

• Global index provider MSCI has changed its weightage for four Adani Group stocks in its various widely tracked indices after reviewing how many shares are available in the “free float” category — that is, shares which can be freely traded without any restrictions.
• MSCI indices are tracked by investors globally, who allocate funds based on weightage given to countries and stocks. The four Adani Group companies are Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC.

Morgan Stanley Capital International (MSCI)

• MSCI, or Morgan Stanley Capital International, is owned by the multinational investment management and financial services company Morgan Stanley.
• It is a leading provider of critical decision support tools, including stock indexes, and services for the global investment community. It has over 160,000 indexes in its portfolio.
• MSCI Indexes facilitate the construction and monitoring of portfolios in a cohesive and complete manner, avoiding benchmark misfit. At the core is its modern index strategy, which provides consistent treatment across all markets, followed globally by investors.

 MSCI Indices

• MSCI has indexes for countries, regions, emerging markets, developed markets, small cap, all cap and even Islamic indexes. It selects stocks for its equity indexes that are easily traded and have high liquidity, with companies having high free float getting more weightage.
• It prefers stocks that have active investor participation, and are without owner restrictions.
• These indices include enough stocks to represent the underlying equity market or the direction and performance of the market.
• MSCI is best known for its benchmark indexes, including the MSCI Emerging Market Index and MSCI Frontier Markets Index, which are managed by MSCI Barra. 
• The company launches new indexes every year.

MSCI India Index

• The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 113 constituents, the index covers approximately 85% of the Indian equity universe, MSCI says.
• As on January 31, 2023, Reliance Industries has a weightage of 9.89, Infosys 7.13, HDFC 6.25, ICICI Bank 5.92 and TCS 4.24. Overall financial stocks have 24.74 per cent weightage and IT 15.72 per cent in the India index.
• The index is reviewed quarterly — in February, May, August and November — with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover.
• During the May and November semi-annual index reviews, the index is rebalanced and the large and mid-capitalization cut-off points are recalculated, MSCI says.

MSCI Emerging Market Index

• The MSCI Emerging Markets (EM) Index was launched in 1988, including 10 countries with a weight of about 0.9% in the MSCI ACWI Index. 
• Currently, it captures 24 countries around the world, including India, and has a weight of 12% in the MSCI ACWI Index. 
• Foreign portfolio investors have been allocating funds to markets in India, China, Brazil, Indonesia and South Africa, where returns are higher, mainly based on the EM Index.

Significance of MSCI’s Action on Adani

• MSCI has changed the weightage of Adani companies in various indexes including emerging market index, India and Asian indexes after group companies lost around $110 billion in market capitalisation over the last two weeks.
• MSCI indexes are widely tracked by foreign portfolio investors, hedge funds and other sovereign wealth funds which allocate funds to various markets like India depending on the overall weightage and direction given by these indexes.
• If India and its top listed companies get good weightage in MSCI indexes, foreign investors pump in more funds on that basis and vice versa. 
• The action on the Adani companies means these stocks will be less favoured by foreign investors and hedge funds while making their India allocations.

Practice Questions for Prelims

Consider the following statements regarding MSCI Emerging Market Index :
1. It currently captures 24 emerging market economies around the world.
2. India has the highest weight in this index after China.

Which of the above statements is/are correct ?
a) Only 1
b) Only 2
c) Both 1 and 2
d) Neither 1 nor 2

Ans. a)

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