Why Power Grid, Reliance Capital Shares Have Slumped

State-run Power Grid of India shares fell sharply for the second straight session on Tuesday. The stock was among the biggest losers in the Nifty today.

Power Grid shares have come under pressure since the Reserve Bank issued a notification on Friday saying the foreign shareholding through FIIs has reached the trigger limit and further purchases of equity shares in the company (by foreign investors) would be allowed only after obtaining prior approval.

RBI's order means foreign investors will no longer be able to buy Power Grid shares in stock markets. As of September 30, FIIs had a 27.41 per cent stake in Power Grid.

Domestic brokerage Emkay Equity Advisory said in a note yesterday that Power Grid may soon be moved out of the MSCI India portfolio too. If Power Grid is excluded from MSCI, there would be further selloff in the counter as passive funds would get out of the stock.

Passive funds invest in index stocks in proportion of their respective weightages. Power Grid has a 0.62 per cent weightage in the MSCI index.

Power Grid has now shed over 7 per cent in two days.

Other stocks that were moving on MSCI changes included: Zee Entertainment (up 2.2 per cent) and Mothersom Sumi (-1.5 per cent). Both these stocks will be added to the MSCI India index today.

HDFC Bank (up 0.3 per cent), Reliance Capital (down 6 per cent), Reliance Power (down 3 per cent) and Jaiprakash Associates (down 7 per cent) will be deleted from MSCI portfolio today. Deletion of these stocks from MSCI index will lead to exodus of passive funds.