Kotak Mahindra Mutual Fund (MF) has launched the country's first fund tracking the MSCI India Index, designed to measure the performance of large-cap and midcap segments of the market.
The MSCI India Index is a widely recognised index used by global investors to track India’s growth story.
“The Kotak MSCI India ETF could be an ideal choice for investors both global and domestic, who believe in India's enduring potential and are ready to be part of its remarkable journey,” Kotak Mahindra Asset Management Company managing director Nilesh Shah said.
Kotak International, the global business arm of the Kotak Group, has set up the Kotak MSCI India ETF Fund to help global investors. The new fund offer (NFO) for Kotak MSCI India ETF opened on January 29 and closes February 12.
What’s on offer?
With 156 stocks, the index covers around 85 percent of the Indian equity universe.
The MSCI India Index, just like the Sensex or the Nifty, is a weighted index. Each stock in the index holds a specific weight, determined by several factors. The three key parameters are the dividend returns for investors, the company's total turnover, and its market capitalisation.
Liquidity is another criterion for inclusion in the index, which indicates how easily a stock can be bought and sold without significantly impacting its price. The index also considers the foreign institutional investor (FII) holdings in a stock.
The top stocks in the index as of December end were HDFC Bank (7.85 percent), Reliance Industries (5.80 percent), ICICI Bank (5.24 percent), Infosys (4.90 percent) and Bharti Airtel (3.19 percent).
The top sectors are financials (27.21 percent), consumer discretionary (13.12 percent), information technology (12.08 percent), industrials (9.12 percent) and energy (8.28 percent).
What works?
The performance of the MSCI India Index is a bit different from the Nifty50 index and can provide diversification to investors.
The primary advantage is the money flow into the MSCI Emerging Market (EM) Index and proxying to MSCI India Index. The funds tracking MSCI EM keeps growing and a huge amount of funds have flown into this index.
The MSCI India Index had a market capitalisation of $1.43 trillion at the end of December.
“Any changes to MSCI India and its constituents and weights have a higher impact than that of Nifty due to the sheer and humungous amount of money tracking MSCI EM,” said Ravi Kumar TV, founder of Gaining Ground Investment Services.
What doesn’t
Over the longer period, active funds in the large and midcap categories have done much better than MSCI Index Index.
A change in the political environment or economic slowdown can impact the performance of the ETF. The other is the currency risk if the investor is a non-resident Indian (NRI) — if the rupee weakens, like it is now, it can affect returns.
“These country-specific ETFs are highly sensitive to investor sentiment, and if global investors pull back from India for any reason, it could cause a sharp decline in the ETF's value,” said Kumar.
What should investors do?
For Indian investors, the index will mean aligning their portfolios with global investors, which makes it susceptible to foreign institutional selling.
In 2025, so far, FIIs have net sold Rs 91,760 crore worth of equities, which has put pressure on these stocks.
Country-specific ETFs are highly sensitive to investor sentiment, and if global investors pull back from India, it can cause a sharp decline in the fund's value.
The fund house might be hoping that FII selling has bottomed out or would taper off soon, paving the way for their return to Indian markets. If and when that happens, these stocks are expected to do well.
“The constituents in the index will feature stocks where there is large float and FIIs have good exposure. These stocks are heavily tracked and in most of cases, the corporate governance is strong. Some of them also have ADRs (American Depositary Receipts) listed. This portfolio of stocks focuses on stocks that have global recognition,” said Deepak Chhabria, CEO of Axiom Financial Services.
This may be a good route for an investor looking for exposure to India's growth story and market potential. The ETF provides an easy way for investors to access the potential without directly investing in individual stocks.
Still, a diversified fund like a flexicap or large and midcap fund solves most of the needs of an average retail investor.
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