Removal of Russian equities by MSCI, FTSE: No inflow benefit to India, emerging markets, says Edelweiss-Here is why

As widely tracked global indices MSCI Inc. and FTSE Russell have announced to remove 'uninvestabe' Russian equities from all the global and regional indices amid heightened tension between Russia and Ukraine, Edelweiss Alternative Research is of the view that India or other emerging markets would not benefit from the fund flow.  

It said with the ongoing restrictions, FIIs are not allowed to trade Russian equities, thus index constituents will be deleted at a “zero value.” 

Passive trackers to value Russian equities holding at zero 

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In MSCI Emerging Markets Index, Russian equities weighted somewhere around 2% and now the passive trackers will value the holding at zero in the books, which effectively means despite of weight reduction of Russian indices there won’t be any flow benefit to other countries of the EM Index, underlined the research.  

Russia’s weight likely to be redistributed among all the countries in indices 

Explaining the rationale, it further highlighted that post the adjustments, Russia’s weight should get redistributed among all the countries in the indices. "The possible weight increase for India will be very minuscule (~15-20bps) thus, there will be no benefit in terms of flows to India," said Abhilash Pagaria- Head, Edelweiss Alternative Research.  

Russia Indexes reclassified as standalone markets  

MSCI had said it is reclassifying MSCI Russia Indexes from emerging markets to standalone markets status. 

“MSCI will now call Russia as a Standalone Market. MSCI Standalone Market Indexes are not included in any of the widely followed passive indices like the MSCI Emerging Markets Index or the MSCI Frontier Markets Index, missing out on foreign passive flows. Currently, other countries in the Standalone category are Botswana, Lebanon, Palestine, Panama and Zimbabwe,” says Head of Edelweiss Alternative Research.   

MSCI decision to come in force from March 9, FTSE Russell's from March 7 

Earlier, FTSE Russell and MSCI have announced to remove Russian equities from all their indexes, the equity index providers had said on Wednesday. 

The MSCI had said its decision will be implemented in one step across all MSCI indexes as of the close on March 9, while the FTSE Russell said the decision to remove Russian equities will come into force from March 7, as per Reuters.   

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)