Shares of the companies that are to be included in the India-related MSCI indices have outperformed the market ahead of their inclusion in the index.
Except Lupin (up less than one per cent), all the remaining seven stocks that are to be included in the MSCI India Index – Bharti Infratel, Shree Cements, UPL (formerly United Phosphorus), Eicher Motors, Marico, Bharat Forge and Container Corporation of India – have rallied between three per cent and 20 per cent in the past two weeks on the Bombay Stock Exchange (BSE). In comparison, the S&P BSE Sensex and the CNX Nifty has gained less than three per cent each during the same period.
On May 12, global index provider MSCI said these eight company's stocks would be included in its India Index. The changes in the index will be effective from the close of trading on May 29, 2015.
These six stocks – Bharti Infratel, Marico, UPL, Shree Cement, Container Corporation of India and Eicher Motors – have touched their respective lifetime high market price during the period. Thus far in 2015, all these scrips have surged more than 20 per cent each, compared to less than one per cent gain of the benchmark indices till Tuesday.
On the other hand, of the 51 stocks that are to be included in MSCI Small-cap Index, 34 stocks have outperformed the S&P BSE Small-cap Index that gained 3.6 per cent since their inclusion in the said index was announced on May 12.
Among individual stocks, Dalmia Bharat, Indoco Remedies, Century Plyboards, Asahi India Glass, Bombay Burmah Trading Corporation and Ajanta Pharma have rallied more than 15 per cent each in the past two weeks. However, Ratnamani Metals, Vinati Organics, CRISIL, Ingersoll-Rand (India), Aarti Industries and Motilal Oswal Financial Services were down two per cent-six per cent.
Experts say passive funds usually buy into these stocks since they track the India - related MSCI indices to gauge the overall market sentiment. Traders, too, accumulate them from a short–term profit making perspective.
Jagannadham Thunuguntla, head of fundamental research at Karvy, says, “Stocks that get included in the MSCI indices usually attract flows. There are passive funds that keep tracking these inclusions to keep tabs on the overall market sentiment. So, this automatically attracts flows to these counters.”
Adds G Chokkalingam, founder & managing director, Equinomics Research & Advisory: “Most stocks get included in the model indices after their growth story becomes successful or evident. Another good example of this is Bombay Burmah, which got included in the MSCI Small-cap Index recently. Once included, one can expect the development to push the stocks higher where a lot of investors accumulate the stock for trading profit.”
Should you invest?
Is there more steam left for these stocks and should you buy these stocks at the current levels?
Chokkalingam suggests that long–term investors should not consider inclusion in model indices as the sole criterion, while investing in these stocks.
“Though the news of inclusion can see a short-term burst in these stocks, long–term investors need to look at the future earnings growth potential before taking an investment call. Traders, however, can make some profit given the short–term upswing,” he says.
Thunuguntla suggests that one can buy these stocks at the time when the inclusion news is announced, as a rally in these counters is expected. “Those who are looking for short-term opportunities can invest before the rally starts. For those who have a medium–to–long term horizon should concentrate on the fundamentals,” he says.
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