Absence of ‘India story’ stocks hurting MSCI India’s returns

ET Intelligence Group: The MSCI India index, a key benchmark for global fund managers in India equities, has been underperforming the rest of Indian indices such as the Nifty , BSE 200 and BSE 500 in dollar terms by a wide margin over the past 12 months. Also, it has kept several foreign exchange traded funds ( ETF) to prune their benefit from the 'India' consumption story .The principal reason is FII ownership restrictions, which prevents inclusion of some of the large-cap stocks.

The top 10 stocks including IOC, HPCL, Bajaj Finserve, HDFC Bank, IndusInd Bank, Kotak Mahindra Bank and Petronet LNG that have contributed the most to the BSE 200's performance are not present in MSCI India. These companies are largely India centric. The MSCI India posted a return of 0.7% in the past one year, while the other benchmark rose in the range of 4 to 13% in dollar terms in the same period.

The 10 stocks contributed 30% of the total 284 points gain in the BSE 200 index over the past year. Since ETFs deploy their funds based on the weight of securities in the benchmark, the absence of these stocks hurt their performance. Foreign ETFs constitute nearly 10% of the total FII investment of nearly of $329 billion in India.

Foreign ETFs have been rising ex posure to Indian equities at a brisk pace over the past few months. In the previous three months, out of the total FII investment of $2.8 billion, nearly $1.9 billion has been deployed by the ETFs, according to Kotak Institutional Equities data.