The US index provider, MSCI's decision to include China A-Shares in its global emerging market index could have some impact on emerging markets like India where experts see outflows of little above USD 200 million and up to USD 1 billion and a dilution of up to 10 bps weight in the index.

According to Moneycontrol Research, India could see passive fund outflows of up to USD 1 billion after inclusion of mainland China shares in MSCI.

MSCI plans to add 222 Chinese shares to its Emerging Markets Index, with an initial weighting of 0.73 percent, and in the MSCI ACWI Index. The first inclusion step would coincide with the May 2018 Semi-Annual Index Review.

The MSCI Emerging Markets Index captures large and midcap representation across 23 Emerging Markets (EM) countries. With 830 constituents, the index covers approximately 85 percent of the free float-adjusted market capitalization in each country

A total 222 stocks from China ‘A’ shares will be included in the index, which is higher than the earlier proposed inclusion of 169 companies. As per media reports, India’s weight in MSCI EM could fall to 8.85 percent from 8.92 percent.

But, not all experts see outflows to be as steep as USD 1 billion, but definitely a little over USD 200 million which should not bother D-Street too much.

“The inclusion of A-Shares will not have any major impact on the Indian market, given modest outflows of around USD 215 million, though the event could have a sentimentally negative impact in near term in some of MSCI heavy stocks,” Sharekhan said in a note.

The full inclusion of domestic Chinese stocks in the widely tracked MSCI Emerging Markets Index could pull more than USD 400 billion of funds from asset managers, pension funds and insurers into mainland China's equity markets over the next decade, said a Reuters report.

Goldman Sachs in a report said that the move was widely anticipated. Further, it added that the move could trigger an inflow of around USD 210 billion into China’s markets over five years.

Indian markets started off on a muted note on Wednesday as some experts turn this as sentiment negative, probably just for the short-term. Amar Ambani, IIFL Private Wealth said that MSCI’s addition of China’s domestic stocks to its emerging-markets index and this could dampen sentiment for India.

Pramod Gubbi, Head of Equities at Ambit Capital in an interview with CNBC-TV18, said that it looks to me pretty watered down exercise because compared to what we were looking at 1 year ago.

“We were looking at 4-5 percent weight increase for China but that has now come down to almost 40-50 bps, so the net impact on India’s weight at best be 10 bps which could eventually lead to USD 200 million of outflows,” said Gubbi.

“This is not that much, considering the fact that we had USD 50 million of outflows yesterday. To that extent, it does not really impact holding of foreigners in India,” he explains.