Shares of Zomato operator, Eternal Ltd reeled under selling pressure, falling 4% in trade on May 26 as investors feared of sharp fund outflows from the counter after global indices—FTSE Russell and MSCI reduced the stock’s weightage in their benchmarks.
Analysts at IIFL Capital anticipate foreign outflows to the tune of around $840-mn to hit Eternal’s share, as the two global index majors prepare to trim Eternal's weightage in their portfolios. In response to the weightage adjustments, foreign investors tracking the two indices are expected to readjust their investments accordingly, possibly putting selling pressure on Eternal’s share.
The reduction in weightage follows a recent change in Eternal’s foreign ownership limit (FOL), which has been lowered from 100% to 49.5%. This revision effectively caps the extent of overseas investment in the stock, prompting index providers to reassess its representation accordingly.
On Friday, FTSE announced adjustments to Eternal’s investability weight, while MSCI is expected to make similar changes during its upcoming May review. Eternal is currently part of several key FTSE indices, including the FTSE All-World Index, FTSE MPF All-World Index, FTSE Global Large Cap Index, and the FTSE Emerging Index. As for MSCI, Eternal features on the MSCI India index.
According to IIFL, FTSE’s rebalancing alone could trigger passive outflows of a $380-mn, or around Rs 3,235 crore. MSCI has also announced a change in the Foreign Inclusion Factor (FIF) for Eternal as part of its May review, which could lead to outflows of around $460 million, according to IIFL. The adjustments are scheduled to take effect on 30 May 2025.
Unlike typical index adjustments that gradually reflect shifts in foreign investment capacity, a direct FOL reduction results in an immediate and full-scale recalibration. This sharper adjustment increases the likelihood of short-term selling pressure, IIFL explained.
