Axis Capital's latest report identifies six Indian companies that could experience significant fund movements during the February MSCI India Index Review, with three stocks positioned for inclusion and three facing potential exclusion from the benchmark index.

Stocks Positioned for MSCI Inclusion

Three companies are expected to benefit from potential MSCI inclusion, with substantial foreign fund inflows anticipated:

Federal Bank Limited, a leading private sector bank offering comprehensive financial services to individuals and businesses, stands to receive the largest inflow of approximately $340 million upon potential inclusion. The bank's robust customer base and strong market presence position it favorably for index consideration.

Indian Bank Limited, one of India's prominent public sector banks with nationwide presence, could attract inflows of approximately $190 million. The bank provides extensive financial services across individual, business, and institutional segments.

Aditya Birla Capital Limited, part of the Aditya Birla Group conglomerate, offers diversified financial products and services across multiple sectors. The company may experience inflows of approximately $170 million if included in the index.

Companies at Risk of MSCI Exclusion

Three companies face potential removal from the MSCI index, which could result in significant fund outflows:

Kalyan Jewellers Limited, one of India's largest jewelry retailers with operations across India and the Middle East, could see outflows of approximately $121 million. The company specializes in gold, diamond, and precious jewelry retail.

Astral Limited, a leading manufacturer of plumbing and building products known for high-quality pipes and fittings, faces potential outflows of approximately $120 million. The company has established strong brand presence in construction and infrastructure sectors.

IRCTC Limited, the public sector enterprise responsible for Indian Railways' catering, tourism, and online ticketing services, may experience outflows of approximately $109 million upon potential exclusion.

MSCI Review Process Impact

The MSCI rejig represents a quarterly rebalancing process conducted by Morgan Stanley Capital International, where the global index provider reviews and adjusts stock indices. These comprehensive reviews occur four times annually in February, May, August, and November, with changes typically implemented at each review month's end.

The evaluation process considers multiple factors including market capitalization, trading volumes, and free float availability. For Indian markets, MSCI changes directly influence foreign investment flows and market sentiment, making these quarterly announcements closely monitored events in financial markets.

Index inclusion typically triggers fund inflows as passive investment vehicles tracking MSCI indices must purchase newly added stocks, while exclusion results in mandatory selling by these funds, creating short-term price volatility.

MSCI has announced potential changes to its India indices as part of its semi-annual review. These changes, if implemented, are expected to take effect after the market close on a specified date.

Proposed Changes in MSCI India Standard Index

The review suggests several additions and deletions to the MSCI India Standard Index:

These proposed changes reflect the dynamic nature of India's equity market, with emerging companies potentially gaining prominence while some established names may make way.

MSCI India Domestic Smallcap Index Proposed Updates

The MSCI India Domestic Smallcap Index may also undergo significant changes:

Note: The Smallcap Index may see a total of 7 additions and 33 deletions, with only selected potential deletions listed above.

Potential Implications for Investors

If implemented, these changes in the MSCI indices could be significant for several reasons:

1. Global Investor Interest: Inclusion in the MSCI India Standard Index often leads to increased interest from global investors.

2. Passive Fund Flows: As many passive funds track the MSCI indices, these changes may trigger fund flows as these funds rebalance their portfolios.

3. Market Dynamics: The changes could reflect shifts in market capitalization, liquidity, and fundamental strength of the affected companies.

4. Sector Representation: The changes may alter sector weightings within the index, potentially affecting global investor allocations to different sectors of the Indian economy.

As the potential implementation date approaches, market participants may closely watch these stocks. It's important to note that while index changes can have short-term impacts on stock prices, long-term performance ultimately depends on underlying business fundamentals and market conditions.

Investors and market watchers should consider these potential changes as part of their broader analysis, keeping in mind that index rebalancing is a regular occurrence designed to ensure that the index accurately represents the current state of the market.