Small-cap stocks added to MSCI; read to know more

PSUs Take Centre Stage in Standard Index Revamp

Morgan Stanley Capital International (MSCI), a prominent provider of global equity indexes, has unveiled its quarterly review outcomes today, February 13th. Among the five newly included entities, four are public sector companies (PSUs), poised to wield considerable influence as they dominate the list of inclusions in the MSCI Standard Index. Bharat Heavy Electricals, GMR Airports Infra, NMDC, Punjab National Bank, and Union Bank of India have been incorporated into the MSCI Standard index.

The expected inclusions are also projected to bring around USD 1 billion in inflows to the Indian equity market on February 29th, when the adjustments are implemented by funds and ETFs tracking MSCI indices.

Small Caps Get Their Share of the Spotlight

MSCI’s focus isn’t limited to large-cap equities. The review also includes 27 additions and six deletions to the Small Cap Index.

Balmer Lawrie, Barbeque Nation, Banco Products India, Cyient DLM, DB Realty, Dhanuka Agritech, Ethos, Healthcare Global Enterprises, Hemisphere Properties, Honasa Consumer, IIFL Securities, Indian Renewable Energy Development Agency (IREDA), ITD Cementation India, J Kumar Infra, Jaiprakash Associates, Jupiter Life Line Hospital, Kesoram Industries, KPI Green Energy, MSTC, Netweb Technologies, Paisalo Digital, Rattanindia Power, Sandur Manganese & Iron, SBFC Finance, SpiceJet, Swan Energy, TARC, and Vedant Fashions are all set to join the index, while GMR Airports Infra graduates to the Mid-Cap Index.

These changes reflect the growing attractiveness of Indian small-cap companies to global investors. As per Nuvama’s analysis, India’s representation in the MSCI Emerging Market pack has nearly doubled since November 2020, from around 8% to the current 17.9%. This trend is expected to continue, potentially exceeding 20% in early 2024.

Looking Ahead

The continuous inclusion of Indian equities in prominent MSCI indexes signifies growing global confidence in the Indian market. This trend is driven by several factors, including:

• Strong economic growth: India is projected to be the fastest-growing major economy in the world, with a GDP growth rate expected to be around 6-7% in the coming years.
• Improving corporate governance: Indian companies are increasingly adopting stricter corporate governance practices, making them more attractive to international investors.
• Demographic dividend: India boasts a young and growing population, providing a vast domestic market for businesses.
• Government reforms: The Indian government has been implementing various reforms aimed at improving the ease of doing business and attracting foreign investments.

Conclusion

The inclusion of Indian equities in the MSCI Standard and Small Cap indexes is a positive development for the Indian market. This will not only bring in fresh foreign investments but also enhance the visibility and liquidity of Indian stocks globally. With a robust economy, improving corporate governance, and a supportive government, Indian equities are well-positioned for continued growth in the years to come.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.