Sazgar Engineering added to MSCI Frontier Markets Index

KARACHI: On Tuesday, MSCI announced the results of its quarterly index review (QIR), which will be effective from August 30. The review brought a notable development for Pakistan’s equity market, with Sazgar Engineering Works (SAZEW) added to the MSCI Frontier Markets Index.

This addition came against market expectations, which had anticipated the inclusion of four to six Pakistani stocks.The QIR also revealed that MSCI has increased the cut-off threshold for total market capitalization and free-float market capitalization from $126 million and $63 million to $138 million and $69 million, respectively, for this August 2024 review.

Analyst Shankar Talreja of Topline Securities commented on the update, highlighting that several companies did not meet the new criteria. “Faysal Bank (FABL), Fauji Cement (FCCL), Fauji Fertilizer Bin Qasim (FFBL), and DG Khan Cement (DGKC) had the free float market capitalization of $67.8 million, $63.9 million, $68.6 million, and $67.1 million, respectively, as of the last cut-off date,” he noted. However, these companies were not added to the index due to their failure to meet the updated $69 million free float requirement.

Interestingly, despite not meeting the required market capitalization threshold, TRG Pakistan (TRG) was retained in the MSCI Frontier Markets Index. This retention was expected under the “buffer rule”, he said.

In the Small Cap Index segment, MSCI made six additions and two deletions. New entrants to the Frontier Markets Small Cap Index are Atlas Battery (ATBA), Ghandhara Automobiles (GAL), Habib Sugar Mills (HABS), Lotte Chemical (LOTCHEM), Octopus Digital (OCTOPUS), and Soneri Bank (SNBL). SAZEW and Hascol Petroleum (HASCOL) were removed from this index, with SAZEW now being part of the main MSCI Frontier Markets Index.

SAZEW’s addition is expected to increase Pakistan’s weight in the MSCI Frontier Markets Index by approximately 7 basis points (bps). The overall weight of Pakistan in the index is anticipated to rise from 4.35 per cent to 4.56 per cent, a 21bps increase when considering the boosted weight of existing constituents.

According to Arif Habib Ltd Research, Sazgar Engineering’s inclusion brings the total number of Pakistani constituents in the MSCI Standard Index to 22, including prominent names such as HUBC, UBL, LUCK, MCB, EFERT, Engro, FFC, HBL, BAHL, OGDC, MTL, MARI, SYS, PPL, POL, BAFL, PSO, NBP, SAZEW, TRG, ILP, and SNGP.

Following these changes, Pakistan’s weight in the MSCI FM Standard Index is expected to be approximately 3.9 per cent. Sazgar Engineering, now part of the main index, is projected to have a weight of around 0.06 per cent.

This addition is seen as a positive development for Pakistan’s representation in the global investment landscape, as it signifies growing confidence in the country’s equity market. The overall increase in the number of Pakistani constituents highlights the resilience and potential of the nation’s key sectors, including automotive, financial services, and energy.

Market analysts estimate that this addition could bring gross inflows of $10-21 million into Pakistan’s equity market, with Sazgar Engineering alone expected to attract inflows of $3.3-6.6 million. This inclusion signifies a positive shift for Pakistan’s market, potentially driving further investment into the country’s listed companies.