Lucky Cement, TRG expect upgrades in MSCI indices

KARACHI: Lucky Cement is likely to get promoted to the MSCI Standard Index and TRG Pakistan stands ready to be included in the MSCI Emerging Market Small Cap Index, analysts said.

“Both Lucky and TRG are now among the top five heavy weight KSE-100 index movers with 4.98 percent and 3.84 percent weight, respectively. Occurrence of this eventuality over the long holiday season is likely to bring a post-festivity rally on the local bourse,” Wajid Rizvi at KASB Securities said.

There is some chatter in the market regarding possible inclusion of Lucky Cement in the main index. “However, we do not expect any deletions or additions of constituents in MSCI Pakistan Index under MSCI Global Standard Indexes. LUCK is unlikely to meet free float capitalization requirement of over $750 million,” said Topline Research.

The existing constituents are Oil and Gas Development Company, MCB Bank and Habib Bank.

MSCI will be releasing the results of the MSCI May 2021 semi-annual index review on May 11.

The latest MSCI updates for March 31 2021 highlighted that the smallest constituent in EM Index and Small Cap Index had a free-float of $108.9 million and $37.5 million, respectively.

This takes away a possible exclusion of the stocks that seem to drop out from investability concerns.

“We highlight Packages Limited as a possibly drag on Small Cap Index from Pakistan; however, it covers basic investability grounds in major aspects”.

Lucky Cement gained 30 percent higher free-float market capitalisation since October 30, 2020 and saw improving investability conditions at the local bourse.

During the last update in October 2020, the markets were still recovering from the pandemic, and would have been an unlikely proxy for the review to make concrete changes. The market has now consolidated largely from V-shaped economic recovery and there is enough warranties over assessment through the investability criteria.

As per the April 2021 methodology update, the MSCI Standard, MSCI Small Cap and MSCI Equity Indexes have transitioned into global investable market indexes methodology. The uniform criteria accounts for a broad-based classification mechanism.

“Based on index continuity rules, there has been a high probability that Pakistan is shifted to a monitoring list for a possible downgrade. Paradoxically, this will change the tone for future market direction KSE-100 index has performed better in Frontier Markets in our past as compared to the performance in the Emerging Markets,” Rizvi added.

Pakistan has been part of MSCI Emerging Market owing to the index continuity rule since May 2019. “However, we do not expect any developments with respect to Pakistan’s exclusion from MSCI EM,” said Topline Research. “We estimate Pakistan’s weight is likely to remain around 0.02 percent.”