MSCI Index Rebalancing Sparks Sudden 850-Point Drop in Indian Sensex

Sensex Falls 850 Points After MSCI Rebalancing

The benchmark index Sensex experienced a sudden decline of 850 points at 3 pm on May 29, following the implementation of MSCI rebalancing during the last half-an-hour of trading. This significant drop occurred in mere 10 minutes as global index provider MSCI added four Indian stocks and removed four from its widely tracked Global Standard Index in its latest periodic review.

The affected stocks are Federal Bank, Multi Commodity Exchange of India, National Aluminium, and Indian Bank, which will enter the index, while Hyundai Motor India, Jubilant Foodworks, Kalyan Jewellers, and Rail Vikas Nigam will be excluded. Despite these changes, India's weight in the MSCI Global Standard Index remains broadly steady at 12.3%, compared with 12.4% after the February review, while the number of Indian constituents is unchanged at 165.

The total outflows due to MSCI rebalancing are estimated to be Rs 8,000 crore, according to brokerages. At 3 pm, Sensex was trading at 75,529.14 and it was trading at 74,685 at 3:10 pm, a near 850-point decline, which represents a 1.1% fall. The Nifty 50 fell 1.5% to 23,547.75 and the BSE Sensex shed 1.44% to 74,775.74 on Friday, taking their monthly losses to 1.9% and 2.8%, respectively.

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India's weight in the MSCI EM index is expected to come down to 11.2% after the latest MSCI rebalancing, as per IIFL Capital. MSCI indexes are key global benchmarks tracked by large passive funds, making index changes a significant driver of stock-specific flows. Inclusions typically attract fresh passive capital, while deletions often trigger outflows as funds rebalance portfolios.

According to Nuvama Quantitative and Alternative Research, passive inflows of $491 million are expected into Federal Bank, $373 million into MCX, $308 million into National Aluminium, and $209 million into Indian Bank. On the other side, Hyundai Motor India, Jubilant Foodworks, Kalyan Jewellers, and Rail Vikas Nigam are projected to see outflows of $281 million, $161 million, $137 million, and $136 million, respectively.

While the Global Standard Index saw balanced additions and deletions, MSCI's small-cap index had heavier exclusions, reducing India's small-cap count to 459 from 474.

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