MSCI India premium surges to 8-month high

The MSCI India Index premium widened to 114.75% on 1 June, the highest since 12 September. The premium widened steadily from 92.74% on 29 March to the 1 June level. This was reflected by the Nifty 50 rising by 8.2% to 18,487.75 from 17,080.70 over the same period as foreign investors, who track these indices, buy the underlying stocks from the local stock exchanges.

The MSCI India Index normally trades at a premium to the MSCI EM Index, but the premium fluctuation indicates how Indian markets perform relative to EMs that make up the EM index. When the premium narrows, Indian stocks underperform and vice versa.

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Market experts said Indian companies’ focus on the domestic markets has insulated them from the global slowdown induced by high interest rates and the fallout from the Ukraine war. The country’s resilience to a global slowdown, coupled with the China-plus-one strategy of many foreign companies, is expected to drive the Indian market’s outperformance, they said.

“The Indian economy is in fine fettle, reflected by the GDP [gross domestic product] number beat,” said U.R. Bhat, the director of Alphaniti and adviser to foreign portfolio investors. “Most emerging -market economies are export-oriented and have borne the impact of the US slowdown. As long as the interest rate-induced global economic slowdown persists, Indian stock market outperformance will continue, and stocks in sectors like fast-moving consumer goods, cement, and capital goods, aside from financial services sectors, will lead this.”

The rise in the premium also means Indian stocks’ valuations are getting pricier.

“The MSCI India Index, in price-to-earnings (PE) terms, is trading at a 115% premium to the MSCI EM Index,” said Santosh Pandey, president and head, Nuvama Professional Clients Group.

Data shows that the current trailing 12-month PE ratio of MSCI EM is at around 10.75 times, while the India index is trading at 23.06 times.

Foreign investors’ buying of Indian shares has resulted in foreign portfolio investment in May hitting a nine-month high of $5.3 billion. The foreign portfolio investors’ (FPIs) buying commenced in March after the Nifty hit a low of 16,828 during the month. It followed $4.1 billion combined sales in January and February.

The MSCI India Index comprises 114 constituents, which cover approximately 85% of the Indian equity universe. The top shares listed on the index by weight include Reliance Industries Ltd, with the highest weight of 10.16%, HDFC Ltd (6.61%), ICICI Bank Ltd (6.53%), Infosys Ltd (5.81%), Tata Consultancy Services Ltd (4.06%), Hindustan Unilever Ltd (2.79%), Bharti Airtel Ltd (2.45%), and Larsen and Toubro Ltd (2.25%) as of April-end.

The MSCI EM Index is made up of 1,377 shares from 24 EM countries. The top 10 include Taiwan Semiconductor Manufacturing Co. Ltd, Tencent Holdings Ltd, Samsung Electronics Co. Ltd, Alibaba Group Holding Ltd, and Reliance Industries.

MSCI is a global index provider well known for its MSCI All Country World Index, which includes 2,933 stocks from across markets like the US, UK, France, Japan, and Singapore among developed markets and from India, China, and Indonesia among emerging markets. It also includes country indices like the MSCI India Index. These indices are tracked by exchange-traded funds and index funds, which invest money into stocks representing the index.

Updated: 02 Jun 2023, 11:56 PM IST