Indian Equity Market Poised for $3.6 Billion Inflow Following US Federal Pension Fund’s Index Switch

Ira Singh
Khabar Khabaron Ki,29 Nov’23

The Indian equity market is gearing up for an influx of approximately $3.6 billion following a strategic move by a major US federal pension fund. Among the emerging markets, India is likely to be one of the biggest beneficiaries of this Federal Retirement Thrift Investment Board (FRTIB) index switch, according to analysts.
Not just India, but the US government’s move will benefit economies globally as the change is expected to reshuffle $28 billion (Rs 2.3 lakh crore) in equity investments around the world.

This is the first time India will be a recipient of FRITB inflows as it was not a part of the old index and has been included in the new index.The decision to switch its investment index has sparked optimism and enthusiasm within the Indian financial landscape.

With around $68 billion invested in the I-Fund (that passively tracks the benchmark index), this benchmark switch will set off churn among constituent stocks in 2024.The benchmark switch could be implemented in 16 tranches that are executed every five days over a four-month period.

Apart from India, Taiwan, Korea, Brazil, Saudi Arabia, South Africa, and Mexico will be the largest gainers within the iShares Emerging Markets ETF.

On the contrary, Japan, UK, France, Switzerland, Germany, and Hong Kong would see the largest outflows, according to experts.

That said, the benchmark switch will not extend its impact on US or Chinese equities since it is not a part of either the old nor new index. Hong Kong index, however, will be one of the worst impacted, showed data as it is a part of old index but not the new one, according to analysts.

The move by the US federal pension fund to redirect its investment focus towards India signals a burgeoning confidence in the country’s economic prospects and market stability. This anticipated inflow is poised to infuse renewed vigor into India’s financial markets and potentially catalyze an upward trajectory in various sectors.