Since the free float in India is quite low, India s weighting in MSCI Emerging Market index could show a major decline while the software sector s weighting in MSCI India index may go up. There could also be many possible deletions from the India constituents list. A relatively higher number of deletions are on the assumption that once 85 per cent of market capitalisation coverage is reached for a particular sector, the remaining stocks within the sector would be deleted. MSCI tries to balance accurate representation of the index with minimising turnover, as it is costly and inconvenient for investment managers. All the changes to MSCI indices are categorised into Structural Changes and Market-driven Changes.
Structural changes refer to changes from the evolution of the market.
For instance, a change in industry composition or regulation. Structural change in a country index can occur only on four dates in a year, ie, close of last business day of February, May, August and November. MSCI index additions and deletions are announced two weeks in advance. Industry restructurings generally take place every 18 to 24 months for a given country. Market-driven changes are induced by events like new issues, mergers, acquisitions, bankruptcies and other similar corporate events.