MUMBAI: Budget proposals to address the country's free-float problem can result in inflows of USD 25 billion, says a foreign brokerage.
Finance minister Nirmala Sitharaman's proposals include hiking the cap on foreign portfolio investors from 24 percent in companies to get them on par with the sectoral FDI limits and increasing the minimum public holding to 35 percent from the present 25 percent.
The plans also include government increasing public shareholding in remaining companies controlled by it to 25 percent and including the stakes of companies it controls while calculating 51 percent stake in non-financial companies. "The announcements, if converted into policy, will have far-reaching impact on the country's free float, the weighting in the MSCI indices, foreign inflows, and supply of equities," Morgan Stanley said in a note on Wednesday.
The brokerage also said these proposals will result in inflows of USD 25 billion or a 1.46 percentage points jump in the country's weighting in the MSCI emerging markets index and a 7 percentage points rise in foreign free-float.
The move to increase the minimum statutory limit for FPI investment in a company from 24 percent to sectoral foreign investment cap will alone increase the weight of the country in the EM index by 0.81 percent and lead to inflows of USD 14.2 billion.
On the move to cut down the currently manadtated 51 percent stake in central units and increasing the public shareholding in remaining state-run firms to 25 percent, it said a government selloff would increase the country's index weight by 0.37 percent with an active and passive flow implication of USD 6.4 billion.
On increasing public shareholding in all the companies to 35 percent, it said controlling stakeholders of the BSE 200 index would need to supply about USD 30 billion of stock for all these companies. It said that for the current MSCI India constituents, the index weight rises by 0.41 percent with a flow impact of USD 4.9 billion.