MSCI Feb 2026 Rejig: AB Capital, L&T Finance Added, IRCTC Excluded

MSCI Announces February 2026 Index Changes

The much-anticipated February 2026 review of the MSCI Global Standard Index has been announced, setting the stage for a significant reallocation of capital within the Indian equity market. The changes, scheduled to take effect from the close of trading on February 27, 2026, will see the inclusion of two major financial services firms, Aditya Birla Capital and L&T Finance. In a notable exclusion, Indian Railway Catering and Tourism Corporation (IRCTC) will be removed from the index. These adjustments are closely watched by foreign portfolio investors, as passive funds that track the MSCI indices will now need to realign their holdings, leading to substantial inflows and outflows for the affected stocks.

Financial Services Sector Gains Prominence

The financial sector has emerged as a key beneficiary of this rebalancing exercise. Aditya Birla Capital is expected to attract inflows of approximately $170 million (Rs 2,447 crore), while L&T Finance is projected to receive around $145 million (Rs 2,221 crore). The inclusion of these companies underscores the strong institutional interest in India's financial services space, which is buoyed by rising credit demand and a resilient domestic economy. Federal Bank remains a borderline candidate for inclusion. If it makes the cut, it could see a substantial inflow of $154 million (Rs 4,117 crore), which is nearly ten times its 20-day average trading volume. The overall inflows from this rejig are estimated by Nuvama Alternative & Quantitative Research to exceed $100 million.

IRCTC and Astral Face Exclusion

On the other side of the ledger, IRCTC is confirmed for exclusion from the index, a move that is expected to trigger an outflow of around $148 million (Rs 1,341 crore). Analysts point to valuation concerns as a primary driver for this decision. The stock has been trading at a high price-to-book (P/B) ratio of 12.9, and MarketsMojo recently downgraded it to 'Sell', citing deteriorating technical indicators despite its historically strong fundamentals. Another company, Astral Ltd., was considered a borderline case for exclusion, with potential outflows estimated at $161 million (Rs 1,459 crore). The company has faced concerns related to execution risks in its CPVC manufacturing expansion, although its technical performance has recently improved, leading to a 'Hold' rating.

Key Changes in the MSCI February 2026 Rejig

Weightage Upgrades and Analyst Perspectives

Beyond the headline inclusions and exclusions, several other companies are set to see their weightage increase within the index. This list includes AU Small Finance Bank, JSW Steel, FSN E-Ventures (Nykaa), and Vishal Mega Mart. The inflows for these stocks are projected to be in the range of $13 million to $172 million. Analyst sentiment on these names is mixed and often tied to their current valuations. For instance, JSW Steel trades at a premium P/E ratio between 36x and 40x, leading to a cautious 'Hold' rating from some analysts despite positive demand forecasts for the steel sector. Nykaa's valuation is exceptionally high, with a P/E ratio exceeding 782x, indicating that the market has priced in very aggressive growth expectations.

Market Impact and Investor Strategy

The MSCI index rebalancing is a critical event for passive investment funds that replicate the index's composition. The adjustments, effective February 27, 2026, will compel these funds to buy the newly included stocks and sell the excluded ones. This forced trading activity often leads to increased trading volumes and price volatility in the days leading up to and on the adjustment date. For investors, these changes highlight shifts in market sentiment and provide insights into which sectors and companies are gaining or losing favor among global institutional investors. The focus on companies with strong domestic demand drivers and resilient financials appears to be a key theme in this review.

Conclusion: A Rejig Driven by Financials and Valuations

In summary, the MSCI February 2026 rejig reinforces the growing importance of the Indian financial services sector, with Aditya Birla Capital and L&T Finance joining the prestigious global index. Conversely, the exclusion of IRCTC serves as a reminder that high valuations can become a significant risk, even for companies with strong market positions. As the effective date of February 27 approaches, market participants will be closely monitoring the associated fund flows and their impact on stock prices, which will reshape several institutional portfolios.