Why should you look for stocks included in MSCI India Index ?

The recent news of inclusion of Indian stocks in MSCI India Index has turned many eyes.

MSCI India Index, an Emerging Market index widely tracked by global funds has recently announced to include four Indian stocks namely, Titan Company Limited , Bajaj Finance Limited , Havells India Limited  and Yes Bank Limited and simultaneously excluded Reliance Communication Limited , Rural Electrification Corporation and United Breweries Limited .

MSCI India Index Importance :

The MSCI India Index measures the performance of the large and mid cap segments of Indian market.

With 73 constituents, the index covers approximately 85% of the Indian equity universe.

The inclusion or exclusion of any stock from the index gives hint regarding the movement of stock, especially in the short – term.

The Morgan Stanley Capital International (MSCI) India Index is widely tracked by Passive funds or Exchange Traded Funds which invest on the basis of the weightage assigned to each stock in the index. Therefore, any change in the index will have a significant and corresponding change in their portfolios and as per that buying or selling of the stocks take place. These passive funds are also known as Index funds as these are benchmarked against the index.

After the news announcement of inclusion of stocks in MSCI index in India, the market has seen some roar. Havells India gained 5.22% on its inclusion in the index. Whereas the other three stocks i.e, Yes Bank, Titan Company and Bajaj Finance showed a very less percentage of gain and ended lower by 1.01%, 2.42% and 0.40 % respectively. However, the excluded stocks from the index, Reliance Communications, REC and United Breweries ended lower by 5.31%, 0.23% and 3.9% respectively.  All these changes in the index will be effective from 1 June, 2016.

The past one year performance of all the four companies:

Trailing 12 Months Graph of Titan,BajFinance, Havells and Yesbank

Stocks included in MSCI Index from June 2016

(* Prices are Adjusted Market Prices. Source: Yahoo Finance

MSCI Included Stocks - Since News Breaking of the Graph

MSCI Included Stocks – Since News Breaking of the Graph

(* Prices are Adjusted Market Prices. Source: Yahoo Finance

Havells India has hit its record high on BSE as its trading volumes on the counter nearly doubled. Havells gained nearly 28% over last one year.On the other hand Yes Bank got up 12.8%, Bajaj Finance 75% and Titan Company 1.84% during the same period.

Conclusion :

The sudden spike in the stock prices of these newly added companies has given some good hope to the investors to look for. But, it should be noted that such type of announcement generally result in short – term volatility in the market. And one must not consider inclusion or exclusion of stocks the only reason to buy or sell, rather fundamentals must also be considered along with stock’s past as well as future performances.