I.India hopes for a strong boost for its stock market. This week, the prices of some companies on the traditional exchange in Bombay (Mumbai) increased significantly. The American financial services provider MSCI had previously announced that it would change the composition of its indices. This should lead to a higher weighting and thus higher demand for Indian papers.
The announcement by the Americans brings India some relief in difficult times: On Tuesday, the subcontinent broke the rate of now eight million corona infections. The International Monetary Fund (IMF) fears that the economy with its 1.4 billion people will melt by 10.3 percent this year. The fund’s economists have cut their forecast for India so much that the third-largest economy in Asia is likely to drop from fifth to seventh in the global ranking of the largest economies.
Setback in the race to catch up
To make matters worse for the self-confident Indian elite, the gross domestic product per capita in neighboring Bangladesh is now higher than in their own country – a disgrace from their point of view. For the government under Prime Minister Narendra Modi, who started as an economic reformer, the predictions are a disaster. Because even before Corona, their reform agenda had slipped away from them. According to the estimate of last year, if India should achieve half of China’s economic power in 2030, it should only be 40 percent after Corona and the Modi government, estimates the Australian Lowy Institute.
In this situation, the message from the Americans is welcome support. Their word carries weight, according to their own calculations, more than 15 trillion dollars depend on the indices they have created. From December onwards, however, they will change the way they look at foreign ownership of Indian stocks and largely adjust the valuation in the country itself – where there were repeated doubts about the survey and reporting. Bank Morgan Stanley expects around $ 2.5 billion in passive inflows into the Indian stock market as a result of these adjustments. These would be investments that are made automatically, because investors only map the indices via system robots.
Given the current composition, the share of MSCI India in the MSCI Emerging Markets index is likely to increase from 8.1 percent to 8.7 percent. If you add shares that can now be added, its weight could increase to 8.8 percent. Conversely, this means for investors who do not trust India to consider their exposure to the overarching index.
Some Indian stocks should benefit directly because they could now be included in the index. These include analysts in Bombay such as Adani Green Energy Ltd., Kotak Mahindra Bank, PI Industries, Asian Paints, Bajaj Finance, Ipca Laboratories and the infrastructure provider Larsen & Toubro. Analysts are convinced that individual stocks could experience additional purchases of up to $ 210 million as part of the reorganization.
Kotak Mahindra should even expect purchases worth around half a billion dollars. The bank already benefited this week from a year-on-year increase in net income of 22 percent in the third quarter. Their share price rose by more than 17 percent.