MSCI February Rejig: Mamaearth, IREDA, Cello Could Be Added To Small-Cap Index, Says Nuvama

MSCI Inc. could add Mamaearth's parent, Indian Renewable Energy Development Agency Ltd. and Cello World Ltd., the companies that went public last year, to its small-cap index in the rejig scheduled for February, according to Nuvama.

India currently commands a 17.1% share in the MSCI EM Index. Due to the country's current momentum and outperformance as compared with other emerging markets, Nuvama projects that the index representation could cross 20% by mid-2024.

"Eligibility criteria for newly listed securities are checked based on the data for a three-month period instead of a six-month period," IDBI Capital said in a note. "The stock to be added should meet the impact cost criteria, and its free-float market capitalisation should be 1.5 times the free-float market capitalisation of the smallest constituent in Nifty 50."

The global cut-off period for the stock index compiler's Feb. 24 rejig is Jan. 18 to 31, and selection will take place in the initial few days of the cut-off period. The announcement is scheduled for Feb. 12, with adjustments on Feb. 29, according to Nuvama.

MSCI Global Standard Index

Jindal Stainless Ltd., Punjab National Bank, Bharat Heavy Electricals Ltd., NMDC Ltd. and Oberoi Realty Ltd. currently qualify for inclusion in the MSCO Standard Index, according to Nuvama.

Alkem Laboratories Ltd., Union Bank of India, Solar Industries Ltd. and Prestige Estates Project Ltd., among other companies, could also qualify for addition to MSCI Standard Index if they rise 2–6%.

Dalmia Bharat Ltd., NHPC Ltd., GMR Airports Infra Ltd., and Nykaa's parent FSN Ecommerce Venture Ltd. could be added if they surge 8–12% price surge.

MSCI SmallCap Index

Indian Renewable Energy Development Agency Ltd., Mamaearth's parent Honasa Consumer Ltd., Cello World Ltd., Jaiprakash Associates Ltd., RR Kabel Ltd. are among the stocks that could be included in the MSCI Smallcap index, according to Nuvama.

GMR Airports Infrastructure and Prestige Estates could be excluded from the index.

India's representation on the MSCI EM pack was steady at around 8% from 2015 till Oct. 2020. Since Nov. 2020, Nuvama has doubled its representation, and it is currently at 17.1%.

This can be attributed to multiple reasons:

• India's standardised foreign ownership limit in 2020.

• Robust performance by Indian equities, particularly in the midcap segment, led to numerous inclusions in every review.

• Relative underperformance by other EM packs, especially China.

India's stock count in the MSCI Standard index rose to 131 in 2023, with the inclusion of a net of 17 Indian stocks over the past four reviews, Nuvama said. "This marks an improvement from 2022, where only a net of nine Indian stocks were included."

The notable factors contributing to this increase in 2023 include India's substantial rally compared to other emerging markets and MSCI's shift from semi-annual to quarterly rebalancing for stock inclusions and exclusions.