Morgan Stanley Capital Investment, a leading provider of research-based indexes and analytics, will tweak the foreign ownership limits for India stocks in its global indexes from December 1, a move that could see passive inflows of $2.5 billion into the country.
The global index-maker has welcomed the recent disclosure of the foreign investment limits for Indian securities by the National Securities Depository (NSDL) and the Central Depository Services Limited (CDSL), addressing the concerns about timeliness, quality and standardisation of data.
"We will implement changes in foreign ownership limits in the MSCI Global Indexes containing Indian securities coinciding with the November 2020 Semi Annual Index Review (SAIR) at the close of November 30, effective December 1, 2020," MSCI said in its statement.
CNBC-TV18 indicated that Morgan Stanley expects passive inflows of $2.5 billion for India if the MSCI implements the changes.
It said Kotak Mahindra Bank, Ipca Labs, Adani Green, Muthoot Finance, MRF, PI Industries, Voltas and ACC could get included in the indexes, while the beneficiaries of the change in foreign ownership limits could be Nestle India, Asian Paints, Colgate Palmolive, Indraprastha Gas, Britannia Industries, L&T, Shree Cement and Petronet LNG.
The foreign ownership limits changes result from the relaxation in the foreign portfolio investor (FPI) limit of Indian companies to the sectoral limit, it added.
In 2019, the Indian government decided to increase the statutory foreign portfolio investor (FPI) limit of Indian companies to the sectoral foreign investment limit, effective April 1, 2020, but had given companies an option that with the board approval, they could restrict FPI limits to a lower threshold.
It means that if the sectoral FPI limit is 74 percent, then the company can raise its FPI limit to 74 percent from 49 percent earlier. Generally, the increase in weightage by MSCI in its indexes raises the possibility of inflow of billions of dollars into Indian markets.
"The foreign ownership limits for securities in the MSCI India Equity Universe would be equal to the limit as per the 'automatic route' except (in) the cases where a higher limit is approved under the 'government route' or the cases where a lower limit is approved by the company's board of directors and its general body, said MSCI.
MSCI said it would review the number of shares and the free float as per the cutoff dates, and would not conduct an additional review of the free float for securities only subject to the foreign ownership limit changes.
As per the simulated list of the potential foreign ownership limits applicable to Indian companies considering the data provided by CDSL & NSDL, around 310 (out of 355 in the list) companies could see an increase in foreign ownership limits.
MSCI had in July deferred the increase in foreign ownership limits.