MSCI index rebalancing triggers volatility in Indian equity markets

Indian equity markets are experiencing volatility as investors reposition portfolios ahead of the MSCI index rebalancing, which takes effect on September 1. The reshuffle is expected to drive significant capital flows, with companies such as Eternal, Laurus Labs, Adani Energy Solutions, Lenskart, and Groww being added to the MSCI Standard Index. Analysts estimate that Eternal could see inflows of approximately $674 million due to its increased weight in the index.

Conversely, stocks including Balkrishna Industries, Astral, and SBI Cards are being removed from the index, potentially leading to outflows. This rebalancing event serves as a major test for India’s newly introduced Closing Auction Session (CAS), which was implemented in August. Market experts suggest that the concentration of large buy and sell orders during the final minutes of trading could lead to sharp price swings and liquidity challenges within the new auction mechanism.