Shares of IndusInd Bank fell 1.34% in morning trade on April 12, topping the Nifty loser list after its recent holding pattern suggested it would miss inclusion in the MSCI benchmark index.

The private sector lender recently released its holdings model for the March 2023 quarter, showing FPI space of about 14.19%, IIFL Alternative Research said in a report.

The minimum FPI space required for MSCI Standard Index inclusion is 15%. The foreign space is essentially the shareholding ratio relative to the maximum permitted foreign investor allowed.

“It was brought to our attention that NRIs held a 0.6% stake, which did not specify its repatriable/non-repatriable nature (the latter being considered a domestic investment). In cases of ambiguity, index providers may be considered foreign investment,” said IIFL Alternative Research.

“We will therefore rule out its inclusion in the upcoming May ’23 review. However, we will monitor the possible inclusion of this name soon,” it added.

Excluding stocks from MSCI indexes could lead to significant capital outflows as foreign investors and passive funds track the indexes for their capital allocations. Likewise, companies that join the MSCI index typically see increased inflows.

In its fourth-quarter business update, IndusInd Bank reported a 21% year-on-year rise in net advances to Rs 2,89,965 crore for the quarter that ended March 31, 2023. Deposits rose 15% to Rs 3,36,443 crore, while the CASA ratio fell to 40.1% from 42.8% a year earlier.

According to MSCI guidelines, if a security’s foreign space is below 25% and equal to or above 15%, the index provider uses an adjustment factor of 0.5 to reflect the actual level of foreign space. When it exceeds 25%, an adjustment factor of 1 is used.