After trading for hours in the green, benchmarks Sensex and Nifty plunged sharply at around 3 pm, falling from the day's high due to several reasons, including global uncertainty and weak monsoon projection.
The Sensex dropped by 1092 points, while the Nifty fell by 359 points. Energy stocks, including ONGC, NTPC, BPCL and Indian Oil (IOCL) remained the biggest laggards.
While several factors, including FFI outflows, weaker monsoon projection, uncertainty over US-Iran peace deal dominated the fall, one of the key reasons was MSCI's May index rejig, that came into effect today.
The losses swelled by 850 points around 10 minutes before closing on Friday as the global index provider added four Indian stocks and removed four from its index.
What is MSCI and MSCI index rebalancing
The MSCI or Morgan Stanley Capital International is a stock market index of over 1,600 global stocks from around 23 countries.
The MSCI index serves as a primary benchmark for international fund allocation, making some stocks more desirable for global investors. In easy terms, an inclusion in MSCI index ensures more visibility to a stock, and therefore invites more investment.
{{/usCountry}}The MSCI index serves as a primary benchmark for international fund allocation, making some stocks more desirable for global investors. In easy terms, an inclusion in MSCI index ensures more visibility to a stock, and therefore invites more investment.
{{/usCountry}}The inclusion and exclusion of stocks in MSCI is done through MSCI index rebalancing, a routine event that takes place every quarter: February, May, August, and November.
Also Read: Why did Sensex, Nifty suddenly crash after 3 pm today: Markets bloodbath explained
So, the MSCI index rebalancing creates a mechanism, which results in predictable flow or outflow of investment.
What happened on Friday?
The changes to the MSCI Global Standard Index, which was announced earlier this month, was set for exclusions and weightage adjustments on Friday.
Four stocks - Federal Bank, Multi Commodity Exchange of India (MCX), National Aluminium (NALCO) and Indian Bank - were included in the index, while four other stocks, including Hyundai Motor India, Jubilant Foodworks, Kalyan Jewellers India and Rail Vikas Nigam (RVNL) were excluded from the list.
According to a Moneycontrol report, the outflows due to the rebalancing was estimated at around ₹8,000 crore.
The changes in the MSCI Global Standard Index remained at 12.3 per cent compare to the 12.4 per cent after the last quarter review. India had reached at its highest at around 20 per cent in July 2024.
Sensex which was trading at around 75,500 till 2:59 pm, plunged to around 74,700 at around 3:10 pm, according to BSE India. Nifty which was hovering around 23,780 fell to around 23,518 at 3:10 pm.
10 of the 16 major sectors logged monthly losses. However, broader markets outperformed, with the small-cap and mid-cap indexes rising 0.7% and 3.2%, respectively.