MSCI Rebalancing: Kotak Bank weight likely to reduce to half; rebalancing announcement on 12th February, 2014 - Emkay

MSCI quarterly rebalancing announcement is due on 12th February, 2014, effective from 3rd March, 2014. Based on our understanding of the MSCI Global Investable Market Indices Methodology, we have arrived at the following conclusion.

MSCI Large Cap Index

Kotak Bank weight to reduce to half: FIIs holding in Kotak Bank has increased to 31.76% from 31.12%. As a result, foreign room has decreased to 14.16% from 15.89%. This should result in its FIF adjustment factor to decrease to 0.50 from 1. As a consequence, Kotak Bank weight in MSCI should decrease as well. We expect the weight of Kotak Bank to decline to around 0.75% from the current 1.50%.

Impact: Assuming that MSCI Benchmarked ETFs make up around $12bn, the expected changes would imply a selling of around 7.61 million shares. The 10-day average trading volume is around 0.44 million shares while the 10-day average delivery volume is around 0.23 million shares.

We have already initiated expected weight increase recommendations in HCL Tech and Nestle and exclusion of Zee, note of which is appended below:

Zee to move out: FIIs holding in Zee has increased to 47.25% from 43.09%. As a result, foreign room has decreased to 3.57% from 10.55%. This should result in its FIF adjustment factor to decrease to 0 from 0.50. As a consequence, Zee weight in MSCI should be 0. The weight of Zee in MSCI India is around 0.46%.

Impact: Assuming that MSCI Benchmarked ETFs make up around $12bn, the expected changes would imply a selling of around 11.58 million shares. The 10-day average trading volume is around 1.48 million shares while the 10-day average delivery volume is around 0.79 million shares.

HCL Tech weight to increase: The RBI approved an increase in its FII limit to 49% from 30%, as a result of which its FIF will increase to 0.49 from 0.30. We expect the adjustment factor to remain at 1. FIIs holding in the stock was around 26% as of September, 2013. In order for adjustment factor to reduce at 0.50, FIIs should have bought additional 15% stake in the company in the previous quarter which looks a very remote possibility. As a consequence, HCL Tech weight in MSCI India should increase. We expect the weight to increase to around 2.91% from the current 1.79%.

Impact: Assuming that MSCI Benchmarked ETFs make up around $12bn, the expected changes would imply a buying of around 6.34 million shares. The 10-day average trading volume is around 0.60 million shares while the 10-day average delivery volume is around 0.36 million shares.

Nestle weight to increase: Nestle was included in the MSCI India during the previous rebalancing with the FIF of 0.24 and adjustment factor of 0.50. Hence the adjusted final FIF was 0.12. The foreign room available was around 47.46%. In order for adjustment factor to remain at 0.50, FIIs should have bought additional 8% stake in the company in the previous quarter which looks a very remote possibility. As a consequence, Nestle adjustment FIF will increase to 0.24 from 0.14 and thereby weight in MSCI India should also increase. We expect the weight to increase to around 0.84% from the current 0.42%.

Impact: Assuming that MSCI Benchmarked ETFs make up around $12bn, the expected changes would imply a buying of around 0.56 million shares. The 10-day average trading volume is around 0.03 million shares while the 10-day average delivery volume is around 0.02 million shares.

Source : Equity Bulls

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