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In this video we explained, what is MSCI India Index and its importance in the stock market. Watch the video to understand the term.
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What is MSCI India Index?
Morgan Stanley Capital International (MSCI) has set up many global indices, one of which is a composite of Indian stocks-the MSCI India index. Many reputed Indian companies across sectors are included in the index. These companies amount to at least 85% of the total equity offered by Indian companies. The index includes 10 major sectors of the economy such as IT, finance and energy sectors. There are 64 companies listed on the MSCI India index, as of May 2015.
How is the MSCI India Index formed?
The MSCI India is a weighted index just like the Sensex. This means every stock on the index has a particular weightage, which depends on a number of parameters. The three most important are: the returns (dividend) that investors receive on the shares; the company's total turnover, and its market capitalization. Turnover and market capitalization represent how big or small a company is. Market capitalization is the sum value of the total shares at a particular time. Bigger the market capitalization of the company, higher the weightage allotted to it. This means, the index comprises of some of the biggest companies in India. The index is reviewed four times in a year - February, May, August and November. New companies are listed after a review, while some are delisted for not meeting the parameters set by the index.
Why FIIs use MSCI India index:
Foreign investors want international markets to invest their funds. They want to know more about the stability and volatility in the prices of shares. The MSCI India Index acts as an indicator of the soundness of the Indian capital market. The weightage of a company depends on its performance in different categories such as the total turnover, market capitalization and dividend return. Greater the weightage, higher will be the amount of foreign investment into the stocks. In simple words, the amount of funds that a foreigner will invest in an Indian share will be directly dependent on the stock's weightage on the MSCI index. If the weightage of a company is reduced then there is always a possibility of foreign investors withdrawing their funds.
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