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Reliance Industries’s growing index weight causing problems for lng term investors
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Reliance Industries‘ increasing weight in the benchmark indices is causing problems for long-term institutional investors as they are facing regulatory hurdles, a report says.
According to financial services major Credit Suisse’ research report, Reliance Industries’ neutral weight, which has been rising rapidly, is causing problems for all types of ‘long-only’ institutional investors.
The report said domestic index investors are constrained by rule imposed by the regulator that they cannot own more than 10 per cent of their assets under management in a single stock.
“The weights in Nifty (National Stock Exchange’s 50-share benchmark index) and MSCI India have crossed 13 per cent and 17 per cent, respectively, and could rise further by 100-200 basis points (bp) in the months ahead,” Credit Suisse research analyst Nilesh Jasani said in the report.
Majority of global index providers like Morgan Stanley Composite Index (MSCI), FTSE, Standard & Poor’s and Dow Jones use free-float market capitalisation weighted methodology for index construction process.
As per this methodology, weight of a stock in the index is based on the size of the company and thus a relatively small shift in the price of a large company would heavily influence the value of the index.
Source: business-standard
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