India to gain if MSCI rejigs emerging index

MUMBAI: Indian stocks could see inflows worth nearly $2.5 billion from foreign investors next year if Morgan Stanley Capital International ( MSCI) approves two key changes to its emerging markets index in a meeting on Thursday.

MSCI is planning to move Korea and Taiwan stocks from its emerging markets index to its developed markets index, a move that will reduce the number of companies in the emerging market index and raise the weightage of stocks of other emerging markets like India.

The decision would be announced on Thursday around 5 amHong Kong time, and changes will be effective from close of markets on May 31, 2013.

Indian stock markets stand to gain from changes in the index as a large number of emerging markets funds abroad invest according to each country's weight in the MSCI index. There are three scenarios in which this could happen, explained analysts at Morgan Stanley. I

f Korea is reclassified as a Developed Market and not Taiwan, then the change would increase India's weight to 7.59% and lead to inflows worth $1.29 billion. India has a weight of 6.41%. Alternately, if only Taiwan is classified as an emerging market, India's weight would rise to 7.2% and attract inflows worth $875 million.

However, if both the countries are included in the developed markets, inflows into India would amount to $2.551 billion.