MSCI's new foreign holding limit proposal may singe bluechip stocks: Report

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Global index provider MSCI's proposed new method of calculating foreign ownership limits could lead to a large outflow from Indians stocks, as per a report in The Economic Times.

The move could potentially lead to a $12 billion selloff, hitting bluechip stocks such as Tata Motors, Larsen and Toubro, ITC and Dr Reddy’s Laboratories.

Moneycontrol could not independently verify the report.

It seeks to exclude global and American depository receipts (GDRs and ADRs) while calculating foreign ownership, the report said citing a discussion paper.

If the proposal is implemented, India's overall weight in the MSCI Emerging Markets Index could fall by 25 basis points to 8.55 percent.

MSCI takes into consideration parameters like the foreign inclusion factor (FIF), which determines the total proportion of shares of a company that offshore investors can buy from exchanges.

Both domestic shares and depository receipts are included in MSCI's calculation of foreign inclusion factor (FIF).

"Passive funds that track MSCI indices don’t invest in any depository receipts. This could be the trigger behind MSCI's new proposal. However, any FPI (foreign portfolio investor) selling due to the change in methodology could be offset if the global passive funds see strong inflows," S Hariharan, head of sales, Emkay Financial Services, told the paper.

Another key proposal of MSCI — to exclude shares of companies that have less than 3.7 per cent overseas investment headroom — could also have a significant impact on Indian markets, especially for private banks, where the limits are often fully utilised. In the aftermath of the FPI limit being breached by HDFC Bank in 2017, SEBI changed its stance and next year issued a circular saying FPI limits have to be monitored on a daily basis by depositories.