How Russia's Removal From MSCI Emerging Market Index Could Boost Indian Equities

Russia's stock market is 'uninvestable' after stringent new Western sanctions and central bank restrictions on trading, making a removal of Russian listings from indexes a "natural next step", a top executive at equity index provider MSCI said on Monday, according to news agency Reuters.

The move can be a booster shot for Indian equity markets which have fallen sharply ever since the Russian invasion of Ukraine began. The Sensex and Nifty have plunged over 6 per cent, data from stock exchanges showed.

"It would be not make a lot of sense for us to continue to include Russian securities if our clients and investors cannot transact in the market," Dimitris Melas, MSCI's head of index research and chair of the Index Policy Committee, told Reuters.

If the MSCI goes ahead and removes Russian listings from the index it could be beneficial for Indian companies, Mumbai-based brokerage firm Edelweiss said in a note to clients.

If we assume that current weightage of Russia in MSCI Emerging markets which is approximately 2.3 per cent is reduced to zero, than four countries gaining the most will be China, Taiwan, India (current weightage is 12.29 per cent) and Korea.

“If” Russian stocks are removed than India could be getting approximately 25 basis points of inflow which equates to total inflow of about $600 million. Considering current EMs market-caps, Edeleweiss added.

“If MSCI finalises to remove Russian stocks from EM Index and at the same time FIIs are not restricted to sell the constituents than it could lead to 25 bps increase of India in MSCI Emerging Markets. The inflow in India as per current EM market-cap could be $600 million which will mainly get distributed in index heavy weights like Reliance Industries, Infosys, HDFC, ICICI Bank and Tata Consultancy Services,” said Abhilash Pagaria, head of Edelweiss Alternative Research.