Removing Russian stocks from the MSCI index will lead to $600 million in foreign inflows into Indian equities, brokerage firm Edelweiss Alternative Research said on March 1. These inflows will get distributed in index heavyweights like Reliance Industries Ltd, Infosys Ltd, HDFC Ltd, ICICI Bank Ltd and TCS, the brokerage report added.
“If MSCI finalises to remove Russian stocks from EM Index and at the same time FIIs are not restricted to sell the constituents then it could lead to 25 basis points increase of India in MSCI Emerging Markets. The inflow in India as per current EM market-cap could be $600mn which will mainly get distributed in index heavy weights like RIL, INFO, HDFC, ICICIBC and TCS," said Edelweiss Alternative Research.
The current weight of Russia in MSCI Emerging markets index is around 2.3 percent, which Edelweiss expects to reduce to zero post exclusion. After this, China, Taiwan, India (current weightage is 12.29 percent) and Korea will benefit the most.
Earlier, news reports suggested that MSCI signalled potential exclusion of Russia from influential indexes amid the ongoing Russia-Ukraine conflict. Western countries have imposed large-scale restrictions and sanctions on Russia following the military invasion of Ukraine last week. With this, financial institutions around the world are also winding down or suspending business in Russia.
With these sanctions, oil and gas major Shell announced its intentions to exit all its Russian operations. The decision comes a day after rival British Petroleum (BP) abandoned its stake in Russian oil giant Rosneft. Norway's Equinor also plans to exit Russia.
Also read: Russia Ukraine News LIVE Updates
As per media reports, Russia’s central bank has ordered brokers not to execute sell orders from foreign shareholders.
"Now with such a restriction, even index providers can not make participants exit the Russian constituents and passive traders will have to continue to hold the stocks. Thus, until more clarity emerges, it is vague to take any short-term bets on diversion of flows from Russia to other emerging countries as until players sell Russian stock they can’t divert the flow," Edelweiss said.
"On the other hand, if foreign clients are restricted from selling Russian securities, and in turn they start writing off their investments in the country as oil giant BP and Shell have done, and also in case of any redemption pressures in ETFs, it could lead to trimming of positions in existing holdings and this could result in some selling pressure across Emerging Markets," the brokerage report added.
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