Billion-Dollar Question

Presently, the MSCI counts shares in Depository Receipts (DRs) and domestic free-float shares when calculating the weight of a company on its indices.

By Aprajita Sharma  
Tuesday, February 19, 2019

The Indian stock market is staring at a $1 billion question! India may see this aggregate outflow if global index provider MSCI changes its methodology to compute Foreign Ownership Limit (FOL). India's weightage in the MSCI Emerging Market index will reduce from 8.78 per cent to 8.55 per cent.

Presently, the MSCI counts shares in Depository Receipts (DRs) and domestic free-float shares when calculating the weight of a company on its indices. But DRs are not liquid for the most part, and foreign investors prefer buying shares directly from the domestic market. The MSCI now proposes to exclude DRs when calculating FOL, which experts say is logical.

Moreover, this will bring MSCI on a par with India's new norms where the RBI and the SEBI consider DRs as part of the sector limit and not the FPI limit. The MSCI will decide on the proposal by end March and the odds are by May this year these would be implemented.

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