Kotak Mahindra bank may weigh heavier on MSCI as foreign holding dips

This could result in a wider foreign headroom opening up and the stock gaining weightage in the MSCI index, according to Nuvama Alternative Research. Foreign room is essentially the proportion of shares available to foreign investors relative to the maximum allowed. MSCI requires this to be at least 15 percent.

Kotak Bank’s foreign room is 22.38 percent. With the fall in foreign investors’ shareholding in the March quarter, the room has increased to 25.05 percent, as per Nuvama Research’s Abhilash Pagaria.

As per the MSCI guidelines, if a security’s foreign room is less than 25 percent and equal to or higher than 15 percent, then the index provider uses an adjustment factor of 0.5 to reflect the actual level of foreign room. When it is more than 25 percent, then adjustment factor of 1 is used.

As Kotak Bank’s adjustment factor goes from 0.5 to 1, its weight will increase in the index. “This could see weight-up led inflow to the tune of $690 million which is almost 32 million shares buying,” Pagaria said.

IIFL Securities has estimated $750-million inflow to the lender.