MSCI to implement changes in FOL for Indian securities soon; massive foreign flows expected

After months of waiting, Morgan Stanley Capital Investment (MSCI) today announced that it will implement changes in Foreign Ownership Limits (FOL) in the MSCI Global Indexes containing Indian securities coinciding with the November 2020 Semi Annual Index Review. The move comes after depository institutions such as CDSL and NSDL, in the beginning of April, increased the foreign ownership limit for all listed companies to their sectoral limits. The global index major said it will implement the changes at the close of November 30, effective December 1. The change is expected to rope in billions of dollars in active and passive flows for domestic stocks where the FOL will increase.

“MSCI welcomes the recent disclosure of the foreign investment limits for Indian securities by National Securities Depository Limited (NSDL) & Central Depository Services Limited (CDSL) addressing the concerns on the timeliness, quality and standardization of the data,” MSCI said early Wednesday morning. The FOL for Indian securities in MSCI India Equity Universe would now be equal to the limit under the ‘Automatic Route’, but could be higher if the government  route has approved a higher limit. It could also be lower if the company’s board of directors has approved a lower limit.

Further MSCI has said it will review the Number of Shares and the free float as per the cut off dates and triggers in various sections of the Global Investable Market Indexes methodology. MSCI, however, will not conduct an additional review of the free float for securities only subject to the FOL changes. Some of the big names that could see an increase in FOL include, Kotak Mahindra Bank, ACC, Adani Gas, Adani Green Energy, Asian Paints, Aurobindo Pharma, Avenue Supermarts, Biocon, Britannia, Escorts, HCL Technologies, HDFC AMC, Indian Oil, L&T Infotech, L&T, Mahindra & Mahindra, Nestle, Tata Steel, Tata Motors, and Wipro among others.

Earlier in June, MSCI had deferred increasing foreign ownership limit indefinitely. MSCI had then said that the changes in FPI limits were new and more time was required for market participants to test the disclosure mechanism. According to global brokerage and research firm Morgan Stanley, the change in India’s weightage could bring in passive inflows of over $1.4 billion and active inflows of $5.7 billion. However, the actual numbers could differ.