MSCI's move to include Hong Kong-China ADRs in EM index may hit Indian stocks

MUMBAI: Global index provider MSCI’s move to include Hong Kong-China American Depositary Receipts (ADRs) into the EM index starting from November may lead to outflows from Indian equities. According to Morgan Stanley, India could see outflows of Rs 3,700 crore between November and May 2016 due to the proposed changes.

MSCI will announce the results of the semi-annual index review on November 13 and the changes are effective from December 1. China's weight in MSCI will go up by 2.7 per cent by May 2016, when the inclusion of ADRs will be complete while India’s weight will come down by 0.25 per cent.
China has 24.3 per cent weight in MSCI EM index while India’s weight is 8.30 per cent. Morgan Stanley said that Axis Bank could be included into MSCI EM index with a weight of 3.4 per cent based on the assumption that MSCI considers 62 per cent as the total foreign limit for the stock. In September 2013, Axis Bank was excluded from MSCI indices after it hit the 49 per cent FII limit. Other stocks that could potentially be included are ICICI Bank, Tata Motors, Maruti Suzuki, Ashok Leyland, Yes Bank, Bank of Baroda and Federal Bank.