'Global money worth $100bn tracks India via MSCI EM Index'

A: Over USD 9 trillion follow MSCI global indexes and of that amount about USD 1.4 trillion follow MSCI emerging markets. India is actually 7 percent of that weight. So, a USD 100 billion track MSCI India through the emerging market index and that is used by global investors, some domestic investors basically from US, Asia, Europe, all over the world. When investors are looking to invest abroad, they use MSCI indexes as their guide.

Ekta: Can you give us more statistics in terms of whether there has been more money which has begun following India in particular in the past year or maybe since there was a new government that came through or the likelihood of elections was coming up? Can you give us more statistics on that?

A: I can tell you the MSCI India index has been one of the top performing indexes. It has performed about 22 percent. It has certainly grabbed a lot of investors interest. We don’t predict flows but emerging markets as an index at one time about 25 years ago was only about 1 percent of the world index and today it is about 11 percent. So, this growth of the emerging markets is largely driven by BRIC countries including India as a very big contributor. So, I can’t predict about what is causing the growth trend over time but it has been a quite interesting development.

Anuj: A question on methodology of the index because there has been some question mark on stocks where the FII cap has come down. For example you dropped Axis Bank, there is a risk of HDFC Bank being dropped even though some of these stocks are institutional favourite stocks. So, what is the exact methodology when it comes to some of these stocks?

A: We can’t comment about exact stocks but I can tell you about our methodology. Our methodology is clear, transparent and rules based and this is why the majority of institutional investors look to our index to have a guide of what is representative of the market. So, importantly we have these rules to try to reflect securities may go up or down and weight maybe included or excluded to represent the evolution of the markets of what is investable for global investors.

Anuj: The reason I ask is, I am not asking you to comment on individual names or individual stocks but for example on our benchmark index, on the Nifty we have ITC as the highest weight followed by Infosys but on the MSCI India index you have Infosys right on top and ITC comes in only at number five or six. What kind of factors lead to this kind of weight differentiation?

A: MSCI index takes into account what is trying to represent the investment opportunity set. We also look at investability factors and from a domestic point of view or an international investors point of view. So, there are different criteria.

On the international investor point of view they care about how many stocks are available for investment. So, if stocks are taken by float that are privately held or government held, some of the stakes are not available for investment it would reduce the securities that are available for investing for global investors.

Anuj: Does the weight also depend on how you believe a particular a stock is going to do; do you have analysis of that as well?

A: No, absolutely not. What we do is we look at the entire opportunity set of investment and then we look at all the securities and how much float is available for each security. So, it is rules based, transparent and trying to represent the index but it also has to be investable for global investors.