FTSE Index Rejig to Boost Indian Stocks?

On February 19, UK-based index provider Financial Times Stock Exchange (FTSE) announced certain vital changes as part of its quarterly index review. The FTSE report mentions various Indian stocks that will be added or removed in its All-World and All-Cap Index. As per reports, India is expected to receive significant inflows in the range of $800 million to $1 billion (~Rs 5,789 crore - Rs 7,232 crore) as a result of these changes. Let us have a detailed understanding of what this actually means.

What is FTSE?

The Financial Times Stock Exchange (FTSE) Group is a UK-based organization that is engaged in the management of asset exchanges and creation of index offerings for global financial markets. It manages the FTSE 100 (also known as “Footsie”), which is an index of 100 companies listed on the London Stock Exchange with the highest market capitalization.

Similarly, FTSE manages a large number of other prominent indices that are tracked by investors around the world. Let us take a look at a few of these: 

• The FTSE Global Equity Index Series is a series of stock market indices that provides coverage of over 16,000 stocks in 49 countries. 
• The FTSE All-World Index is a market-capitalisation weighted index representing the performance of the large and mid-cap stocks from the FTSE Global Equity Index Series. 
• Meanwhile, the FTSE Global All Cap Index is a market-capitalisation weighted index representing the performance of the large, mid, and small-cap stocks globally.

Latest Announcements from FTSE:

According to its recent ‘March-21 Semi-Annual Rebal Results’ report, FTSE will add 29 Indian stocks to the All Cap Index, while 5 stocks will be added to the All-World Index. Also, FTSE will be implementing the 3rd tranche (round) of the India Foreign Ownership Limit (FOL) changes on March 19, 2021. When FTSE introduces these changes to the FOL, it would pave the way for a huge infusion of foreign money into these Indian stocks.

Here is a list of prominent stocks that will be added to FTSE’s indices:

Large Cap Index:

Stocks that will be Included

Stocks that will be Excluded

Reliance Industries Partly Paid-up Shares

United Breweries 

Adani Enterprises

Punjab National Bank

Adani Total Gas

Mid Cap Index:

Stocks that will be Included

Stocks that will be Excluded

Honeywell Automation

Adani Enterprises

Hindustan Aeronautics

Future Retail

Apollo Hospitals

Mindtree

Varun Beverages

United Breweries

Punjab National Bank

What is the Impact of these Changes?

We normally see that Mutual Funds and Exchange Traded Funds (ETFs)— who are continuously tracking these particular indices— would begin to infuse millions into the stocks that have just been included. Or, various institutional investors would see potential in these stocks due to their impressive fundamental or technical forecasts. This confidence from big players will also make small retailers invest more money into these stocks. Eventually, the share prices of these companies would have a high chance of increasing. 

We witnessed a very similar case when there was a reorganisation in the Morgan Stanley Emerging Markets Index in October 2020. You can read more about the MSCI rejig here.

As per a report from Edelweiss Research, Reliance Industries Partly Paid-up Shares are set to see inflows worth $165 million (~Rs 1,195 crore) after being included in the FTSE All-World index. It was also reported that Mindtree, Varun Beverages, Hindustan Aeronautics, Adani Gas, Honeywell Automation, and Apollo Hospitals are likely to receive inflows in the range of $20 million-$80 million (~Rs 144 crore - Rs 579 crore).

On the other hand, the inclusion of these stocks in major global indices shows encouraging signs of how our Indian companies are performing. Do look out for such important and relevant news (such as the FTSE rejig), as it could have an effect on how markets perform on specific days.