The financial ecosystem in India is witnessing significant developments as global index provider MSCI has announced key changes to its indices. In its May 2025 rebalancing, MSCI has included two prominent Indian companies in its Global Standard Index, a move that could trigger substantial foreign investment inflows into the Indian market.
These changes are particularly noteworthy for Indian investors as they could influence market dynamics, stock valuations, and overall investment strategies in the coming months.
Recent MSCI Index India Updates
The latest MSCI index inclusion has brought two Indian companies into the spotlight. Murugappa Group’s Coromandel International Ltd [NSE: COROMANDEL], a major fertiliser manufacturer, and FSN E-commerce Ventures [NSE: NYKAA], the parent company of beauty and fashion retailer Nykaa, have been added to the MSCI Index India. This inclusion forms part of the broader MSCI rebalancing exercise announced in May 2025.
According to market analysts, this inclusion is expected to bring significant passive investment flows into these stocks. Estimates from Nuvama Alternative & Quantitative Research suggest inflows of approximately $252 million for Coromandel International and $199 million for Nykaa. These funds typically flow in from global passive funds that track the MSCI indices and must adjust their portfolios to reflect the index changes.
These changes will take effect after the market closes on 30 May 2025, giving investors time to position themselves ahead of the anticipated inflows.
Broader MSCI India Changes
Beyond these two major additions, the MSCI India changes also include modifications to other indices. Coromandel International Ltd and GMR Airports Ltd [NSE: GMRAIRPORT] have been added to the MSCI India domestic index, while auto components manufacturer Sona BLW Precision Forgings Ltd [NSE: SONACOMS] has been removed.
The MSCI stock list in India has seen more extensive changes in the small-cap segment:
- 12 stocks have been added to the MSCI India Domestic Smallcap Index, including:
- Acme Solar Holdings Ltd. [NSE: ACMESOLAR]
- Authum Investment and Infrastructure Ltd. [NSE: AIIL]
- AWL Agri Business Ltd [NSE: AWL]
- Dr Agarwal’s Health Care Ltd [NSE: AGARWALEYE]
- Godrej Agrovet Ltd [NSE: GODREJAGRO]
- 21 stocks have been removed from this index, including:
- Aarti Drugs Ltd [NSE: AARTIDRUGS]
- Allcargo Logistics Ltd [NSE: ALLCARGO]
- Godrej Industries Ltd [NSE: GODREJIND]
- Several companies are expected to witness increased inflows due to enhanced weightage, while Astral may see outflows due to reduced weightage. This includes:
- Cipla Ltd [NSE: CIPLA]
- Indus Towers Ltd [NSE: INDUSTOWER]
- Grasim Industries Ltd [NSE: GRASIM]
Impact on Indian Stock Market
The Indian stock market impact due to these changes could be substantial. Historically, stocks that receive global index inclusion tend to see price appreciation in the run-up to the effective date of inclusion. This is already evident in the case of Nykaa, whose shares climbed 3% immediately following the announcement.
The MSCI India weightage in the Global Standard Index has risen marginally to 19.4%, up from about 19% in the previous revision in February. This gradual increase in India’s representation in global indices reflects the growing importance of Indian markets on the global stage and could lead to sustained long-term inflows from international investors.
For the broader market, these index changes act as a validation for the potential and quality of the included companies, probably boosting investor confidence in these sectors.
Emerging Sectors in Focus
The latest MSCI rebalancing highlights some interesting trends in the Indian market, as outlined below:
- E-commerce sector gains prominence with Nykaa’s inclusion, reflecting digital retail’s increasing importance.
- Renewable energy emerges through Acme Solar’s addition to the small-cap index.
- Agricultural stocks strengthen their position through Coromandel International and AWL Agri Business.
- Healthcare sector expansion continues with Dr. Agarwal’s entry into the index.
- These sectors align with global sustainability and digital transformation investment trends.
These inclusions align with broader Indian investment trends that show increasing investor interest in sustainable businesses, digital transformation, and sectors catering to evolving consumer preferences.
Implications for Foreign Institutional Investors
Actions of Foreign Institutional Investors (FII) following MSCI changes can create significant market movements through mandatory portfolio realignments, such as:
- Passive funds must purchase newly included stocks, potentially driving up their prices.
- Removed stocks may face selling pressure as funds eliminate positions to match indices.
- FII inflows could reach $408 million for Nykaa and Coromandel International combined.
- Active managers often use index changes as signals for their research focus.
- Heightened trading volumes typically occur in affected stocks before rebalancing dates.
Strategic Considerations for Indian Investors
For Indian investors, these MSCI India changes create both opportunities and challenges. Stocks newly included in MSCI indices might see short-term price appreciation due to index-related buying. However, this could also mean that these stocks might become temporarily overvalued relative to their fundamentals.
For those interested in capitalising on these developments, it might be worthwhile to:
- Monitor stocks recently added to MSCI indices for potential investment opportunities.
- Pay attention to emerging sectors highlighted by these inclusions.
- Consider the impact of changing MSCI India weightage on overall market dynamics.
- Evaluate stocks removed from indices for potential value opportunities if the selling pressure has been excessive.
The emerging markets index adjustments also highlight the importance of maintaining a balanced portfolio approach. While index inclusions can drive short-term performance, long-term investment success still depends on fundamental factors like company performance, growth prospects, and valuation metrics.
Final Thoughts
The recent MSCI Index India changes represent a significant development for the Indian financial markets. The inclusion of Coromandel International and Nykaa in the Global Standard Index, along with numerous changes to the small-cap indices, will influence investment flows and potentially reshape Indian investment trends in the coming months.
As the effective date of 30 May approaches, market participants will be closely monitoring these stocks for opportunities arising from this significant MSCI rebalancing exercise.
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