OREANDA-NEWS. May 25, 2015. The quarterly rebalancing of the MSCI India Index is likely to result in an increase of net inflows from passive foreign funds.

Global index provider MSCI has raised India’s weighting in the MSCI Emerging Index under its semi-annual review. From 29 May, eight new stocks will be injected into the MSCI India IndexSM, while one has been excluded.

The companies that will be included are Lupin, Bharti Infratel, Marico, Container Corporation, Bharat Forge, Eicher Motors, Shree Cement, and UPL, while Reliance Infrastructure will be removed.

Analysts expect inflows of up to US\\$1 billion following this revision, as passive fund managers rebalance their portfolios to follow the index. India's weighting in the MSCI Emerging Index is expected to increase by some 50 basis points from 6.7%.

As shown in table 1, the MSCI India IndexSM, exhibited a correlation of almost 94% with the CNX Nifty Index as well as SGX’s Nifty and MSCI India Index futures.

Table 1 : Average Weekly Correlation (7 May 2014 to 8 May 2015)

Index SGX CNX Nifty Index Futures SGX MSCI India Index Futures CNX Nifty Index
MSCI India Index 94.1% 98.8% 97.5%

Source: Bloomberg

The announcement could not have come at a more fortuitous time for India’s equity market.

Indian stocks hit speed bumps in April as earnings disappointed and promised reforms stalled. Prime Minister Narendra Modi's victory last May had set the stage for fund inflows into Indian equities on hopes of much-needed reforms, but these efforts have been slower than expected. Parliamentary bills aimed at making conditions easier for businesses to acquire land and reforming taxes have been delayed.

With hopes of fast-tracked reforms fading, the ardour of foreign investors for Indian equities has cooled.

"India is one of the markets across the region to have witnessed the highest number of earnings downgrades," HSBC wrote in a report, noting consensus estimates for this year have fallen by more than 5% over the past three months.

"Weaker earnings growth expectations will, by definition, alter earnings-based valuations for the market. India's price-to-earnings (P/E) valuations therefore remain elevated. India is currently the second-most expensive market in Asia in terms of 12-month forward P/E," it added.
April Exports Slip 10.6% Year-on-Year

India’s trade numbers could also be a cause for concern. Exports in April 2015 fell 7.4% month-on-month, dragged down by anaemic global demand.

April exports were valued at INR138,400 million (US\\$22,054 million), 10.6% lower than INR 154,718 million (US\\$25,634 million) in year-ago-period. The on-going weakness in merchandise exports will weigh on GDP numbers due to be released on 29 May.

India Merchandise Exports Data

Source: Bloomberg

India’s exports have been rendered less competitive due to the relative strength of the rupee. Although the rupee has retreated against the US dollar over the past year, other currencies fell by a greater percentage.

Source: Bloomberg

Prime Minister Modi has placed exports and the augmentation of India’s infrastructure on the top of his to-do list. The Indian Premier hopes to almost double goods and services exports to US\\$900 billion in the next four years.

Reserve Bank of India’s Monetary Easing Policy

India’s central bank surprised markets with two cuts to its key lending rate during this year as it joined a world-wide trend of monetary easing, driven by the aim of boosting export competitiveness.

The Reserve Bank of India recently lowered its main repurchase rate to 7.5%, citing weakness in parts of the economy as well as favourable inflation figures.


Source: Bloomberg

Some analysts believe that more rate cuts are on the way.

In April 2015, India's Consumer Price Index (CPI) grew at 4.87% year-on-year, the lowest in four months, largely due to a decline in oil prices. The market expects inflation to continue slowing in May 2015, giving the Indian central bank more room to cut rates.

Source: Bloomberg

The second reason to expect an interest rate cut is declining exports. India's exports fell to 2013 lows in April 2015.

SGX India Futures Update

SGX’s CNX Nifty Index futures and MSCI India Index futures have been gaining traction. Both denominated in USD, these futures contracts represent a quick and cost-effective way to access the Indian equity market without the need for Foreign Portfolio Investor status.

The SGX CNX Nifty Index futures achieved a new record open interest of 561,067 contracts on 28 April, representing over US\\$9.2 billion in notional value. On 19 May, the MSCI India Index futures booked open interest of over US\\$36.7 million.

Margin offsets are available between SGX MSCI India and Nifty India futures. Please click here for latest margin details.

Contracts Specifications

Underlying Index

Bloomberg ticker:

MSCI India Index

MXIN

CNX Nifty Index

Nifty

Denomination

US\\$
Trading Hours

Singapore Time

T session

T+1 session

 9.00 am – 6.15 pm
7.15 pm – 2.00 am		 9.00 am – 6.10 pm
7.15 pm – 2.00 am
Contract Size

US\\$50 x Futures Price

? US\\$54,800

 US\\$2 x Futures price ? US\\$17,500
Minimum Price Fluctuation

0.2 index point (US\\$10)

? 1.87 basis points

0.5 index point (US\\$1)

? 0.58 basis points
Contract Months

2 serial & 4 quarterly months
Last Trading Day Last Thursday of the expiring contract month. If this falls on an India holiday, the last trading day shall be the preceding business day.
Settlement

Cash settled
Final Settlement Price Official closing price of Index on the last trading day, rounded to 2 decimal places.
Blocks/NLTs

Minimum 50 lots

Margins

Initial

Maintenance

US\\$1650

US\\$1500

US\\$660

US\\$600
Inter-commodity Spreads Margin offsets available between MSCI India & Nifty and also with INRUSD, Nikkei, MSCI Indonesia, MSCI Taiwan, FTSE China A50 and MSCI Singapore Futures on SGX.
Position Limits 10,000 contracts 25,000 contracts

Price Vendor Bloomberg:

Reuters:

SSIA

SIIZ:

IHA

SIN: