MSCI has upgraded Pakistan-based automobile manufacturing firm Sazgar Engineering to its Frontier Market (FM) index and added six other companies to its small-cap index, inviting some fresh foreign buying into these companies' stocks at the Pakistan Stock Exchange (PSX).
According to the results of the latest quarterly index review (QIR) of August 2024, Morgan Stanley Capital International has migrated Sazgar Engineering to one of its major global indexes (FM) from the small-cap index.
Additionally, the global index and analytics provider added six more companies: Atlas Battery, Ghandhara Automobiles, Habib Sugar Mills, Lotte Chemical Pakistan, Octopus Digital, and Soneri Bank.
MSCI announced the latest changes after the market capitalisation (total value of a company based on its current share price) and free float market capitalisation (value of shares publicly available for trade at a stock market) of these companies increased at the PSX due to a significant rally in stocks over the past year.
However, the global firm deleted Hascol Petroleum from the small-cap index after it failed to maintain MSCI benchmark levels. Topline Research reported that the changes will take effect from August 30, 2024.
Shankar Talreja of the research house commented that, assuming foreign companies and individual investors with $5-10 billion assets under management (AUMs) are tracking MSCI Frontier Market Indexes, "we estimate gross inflows of $10-21 million at PSX. Within this, gross inflows in Sazgar Engineering are expected at $3.3-6.6 million."
Earlier, the market was expecting some four to six additions from Pakistan into the MSCI Frontier Market index. However, the increase in MSCI market capitalisation and free float levels in the latest review did not let the speculated firms qualify for inclusion in the main global index.
Following the latest upgrade, addition, and deletion, the total number of Pakistani firms in the main index rose to 22 from 21. The number of PSX firms in the MSCI small-cap index surged to 60.
Talreja noted that MSCI added only one company to the main FM index, contrary to expectations for four to six scrips, after it increased the cutoff threshold for total market capitalisation and free float market capitalisation from $126 million and $63 million in the prior review to $138 million and $69 million, respectively, for the August 2024 review.
The companies that failed to meet Topline expectations were Faysal Bank, Fauji Cement, Fauji Fertiliser Bin Qasim, and DG Khan Cement. "These companies had free float market caps of $67.8 million, $63.9 million, $68.6 million, and $67.1 million, respectively, falling short of the latest cutoff at $69 million free float." MSCI retained TRG in the index despite its shortfall in market capitalisation, as predicted by the research house. "We also highlighted this in our MSCI preview report released on August 1, 2024, that TRG may also get retained under the buffer rule."
Pakistan's weight in the MSCI FM is projected to increase. With the addition of Sazgar Engineering, Pakistan's weight is likely to rise by 7 basis points. Similarly, the existing constituents' weight is expected to increase from 4.35% to 4.49%. These combined will take the total Pakistan weight to 4.56%, up 21 basis points. PSX emerged as the world's best-performing stock market in FY24, soaring 89% in rupee terms (94% in US dollar terms) to close at 78,445 points, compared to FY23's closing at 41,453 points. The index reached an all-time intraday high of 81,940 points in mid-July 2024, closing at 77,877 points on Tuesday.
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