MSCI reverses HDFC weightage cut; to review again in Aug

“MSCI has taken into consideration the vote of the director of the company to increase the FII limit from 74% to 100%, and decided to reverse the change which was initially allowed as part of the May semi annual index review,” said executive director Sebastien Lieblich in an exclusive interview to CNBC-TV18.

HDFC’s weightage was cut to 3.2% from 6.2% earlier this month .

MSCI, however, says that they will review HDFC’s weightage again at its quarterly review in August. “We will be taking into consideration all the information up until the August quarterly review, and potentially review for ownership limits for HDFC at this point in time,” said Lieblich.

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On the back of this news, the stock gained 4.5% in trade today to close at Rs 663.

Below is an edited transcript of his interview with Ekta Batra and Gautam Broker. Also watch the accompanying video.

Q: There was some confusion with regards to the weightage of HDFC in the MSCI revision that took place earlier in May. Could you take us through that?

A: With respect to the weighting of HDFC in the MSCI India Index, we announced on May 15 as part of the 2012 semi-annual index review that the weight of HDFC would be reduced by half by applying an adjustment factor of 50% to its weight. This was following a decrease in the number of shares available to foreign institutional investors (FII) as part of the total allowed.

However, as there have been some developments with respect to HDFC, MSCI has taken into consideration the vote of the director of the company to increase the FII limit from 74% to 100%, and decided to reverse the change which was initially allowed as part of the May semi annual index review

So we announced yesterday that weight would revert back to the initial weight prior to the cutting of 50% of the weight initially announced.

Q: So all things being equal, there is a high likelihood now that in the August review the HDFC weightage will remain at 0.74% and not undergo any kind of change?

A: What we have also communicated is that when we assess the situation during the August quarterly index review, there is still some pending news or pending communication from RBI on the increase of foreign ownership limits.

We will be taking into consideration all the information up until the August quarterly review and potentially review for ownership limits for HDFC at this point in time.

Q: Do you think EMs could continue to suffer or at some point the valuations will make them attractive and you could see some kind of inflows again?

A: It is very difficult for MSCI to answer such a question because we are just witnessing what is happening. We have seen a year-to-date good performance of the MSCI EM Index as a whole, so that is what we are witnessing. But we are no way in a position to forecast what could happen in the future over the rest of the year with respect to one given index.