The Federal Retirement Thrift Investment Board’s (FRTIB), one of the US government’s main retirement funds, decision to change the benchmark index for gaining international exposure will channel $3.6 billion (Rs 30,000 crore) inflows into domestic equities.
India has a weightage of 5.3 per cent, seventh-most in the new MSCI ACWI IMI ex USA ex China ex Hong Index, which FRTIB now plans to use.
India isn’t part of the current developed markets-dominated MSCI EAFE index that the pension fund uses.
An analysis done by Nuvama Alternative & Quantitative Research shows Reliance Industries (RIL), ICICI Bank, Infosys, and HDFC Bank will draw the highest inflows among domestic stocks on account of the switch.
The flows in these four companies will range between Rs 1,200 crore and Rs 2,000 crore.
Given how large these stocks are, analysts say the impact on account of these passive flows will be minimal.
Dissecting the MSCI ACWI IMI ex USA ex China ex Hong Kong Index
Moreover, the Rs 30,000 crore inflows will be invested in 567 Indian stocks that are part of the MSCI ACWI IMI ex USA ex China ex Hong Index.
“The potential flow in 2024 could range from $3.6 billion to $3.8 billion.
"While it's a positive step for India in attracting more stable foreign flow, the impact may not be significant to move the individual stocks or the market at large, as the flow will be distributed across 567 stocks in proportion to their free float,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.
Also, there is no definitive timeline on when the index switch will be completed.
The FRTIB has announced that it will work with its fund managers to implement the transition from the current index to the new index in 2024.
