Controversy triggered as MSCI India Index reduced the weight of Bharti Airtel
Morgan Stanley Capital International (MSCI) India Index has reduced the weight of Bharti Airtel from 3.8% to 1.92% in its index. This has triggered a controversy as some brokers alleged that MSCI had made a mistake.
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.
However, the following are the reasons explained with regards to the index:
Foreign ownership in telecom sector has been capped at 49% under the automatic route. However, Airtel has taken approval to raise this limit so that the foreign ownership can be increased from the current limit of 20% to 74%. But a condition has been attached while giving this approval which is - the Airtel’s subsidiaries should also comply with the foreign ownership limit. For this, it has to obtain necessary approvals from the appropriate authorities, for instance NSDL, and it is in the process of doing it.
Furthermore, since direct foreign ownership of the company currently stands at 42%, the room for foreign investors to make further investments is only 7%. That is probably the reason why MSCI has reduced the Airtel’s weight in its index.
