After trading for hours in the green, the Sensex and Nifty fell sharply at around 3 pm, falling from the intraday high due to several reasons, including global uncertainty and weak monsoon outlook.
The Sensex fell by 1,092 points, while the Nifty fell by 359 points. Energy stocks, including ONGC, NTPC, BPCL and Indian Oil (IOCL) remained the biggest decliners.
While many factors, including foreign financial institution outflows, a weak monsoon outlook, and uncertainty over the US-Iran peace agreement, dominated the fall, one of the main reasons was the MSCI index realignment for May, which took effect today.
Losses swelled by 850 points about 10 minutes before Friday’s close, as the global index provider added four Indian stocks and removed four from its index.
What is MSCI and MSCI rebalancing
The MSCI or Morgan Stanley Capital International Index is a stock market index of more than 1,600 global stocks from about 23 countries.
The MSCI index acts as a primary benchmark for allocating international funds, making some stocks more desirable for global investors. In easy terms, inclusion in the MSCI index ensures more visibility for the stock and thus invites more investment.
The inclusion and exclusion of stocks in MSCI is done through MSCI index rebalancing, a routine event that occurs every three months: February, May, August and November.
Also Read: Why Sensex and Nifty suddenly collapsed after 3 pm today: Bloodbath in markets explained
Therefore, MSCI rebalancing creates a mechanism that leads to a predictable inflow or outflow of investment.
What happened on Friday?
The changes to the benchmark MSCI World Index, announced earlier this month, are set for exclusions and weight adjustments on Friday.
Four stocks – Federal Reserve Bank, Multi Commodity Exchange of India (MCX), National Aluminum (NALCO) and Indian Bank – have been included in the index, while four others, including Hyundai Motor India, Jubilant Foodworks, Kalyan Jewelers India and Rail Vikas Nigam (RVNL) have been excluded from the list.
According to a Moneycontrol report, the outflows due to rebalancing were estimated at approx $8000 Crores.
Changes in the benchmark MSCI World Index remained at 12.3 percent compared to 12.4 percent after the last quarter review. India reached its highest levels of around 20 per cent in July 2024.
The Sensex, which was trading at around 75,500 as of 2:59 pm, fell to around 74,700 at around 3:10 pm, according to the Stock Exchange of India. The Nifty index, which was hovering around 23,780, fell to around 23,518 at 3:10 pm.
10 of the 16 major sectors recorded monthly losses. However, broader markets outperformed, with small and midcap indices rising 0.7% and 3.2% respectively.
