MSCI report not to impact country outlook

NetScribes/Salil Panchal

A section of the private sector mutual funds, including Banque Nationale de Paris, Sun F&C Mutual Fund and Templeton India Asset Management, will consider alterations in their weightages for India next week. They will also take a fresh look at their allocation to specific scrips.

This is a direct fallout of Friday's rebalancing of the Emerging Markets Free Index of the Morgan Stanley Capital Index. In its quarterly index rebalancing for various developed and emerging markets, MSCI has marginally reduced the weightage for India from 6.96 per cent to 6.84 per cent.

The pro forma weights through index rebalancing will see lower weightages for India, China, Korea, Malaysia, Israel, Pakistan, Thailand, Turkey, Taiwan and South Africa. The pro-forma weights will apply after August 31, 2000.

Fund managers from private sector mutual funds and foreign institutional investors benchmark their funds to the MSCI and the weightage allotted to each region and country.

Since the weightage for India has been lowered only marginally, the impact would not be substantial, said fund managers with private sector mutual funds. "The difference in terms of asset allocation would have to be worked out. We will take into account internal views and our own analysis,'' said Nikhil Khattau, chief executive officer, Sun F&C.

Gavin Azavedo, head of capital markets at BNP, said that downgrading may take place but only to the same degree as the MSCI weightage. "The overall country outlook will not be impacted, but specific scrips within the index will have to be re-looked,'' he said. BNP, along with its broking business, operates in the mutual funds business and carries out a large number of advisory operations for high networth and institutional clients across the country.

Meanwhile, there isn't much going for the domestic market at the moment. The macro-economic picture is still weak in terms of growth in exports, investments in engineering, auto, steel and cement, the pace of infrastructure reform and disinvestment by the government in large public sector undertakings. With interest rates in the US expected to move higher, US-based investors' interest in the emerging markets is not expected to improve in the coming months.

A further cause for worry would be that MSCI is set to come out with another report that will further restructure its index weightages for various countries on the basis of the free float of stock in various companies at these markets. The report is expected to be released in the next four months.

Some of the leading FIIs like CSFB and Jardine Fleming will wait until MSCI's free float stock report is released rather than alter their macro-economic country reports immediately.

The countries whose pro forma weightage have been upgraded include Poland (1.15 per cent against 1.10 per cent), Brazil (9.64 per cent from 8.81 per cent) and Greece (4.99 per cent from 3.97 per cent). MSCI has also announced that it will add a further $532 billion (2.5 per cent) in the market capitalisation to the MSCI All Country World Index Free index.

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