Acceptance of T+1 settlement cycle of Indian equities by MSCI

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New Delhi: Underscoring the benefits of a shorter trading cycle, global index provider Morgan Stanley Capital International (MSCI) has recognized a shorter settlement cycle of T+1 (Trade+1) in India for equity markets.

India implemented a shorter T+2 cycle for all listed companies in January this year, allowing for next-day transfer of shares and funds. India has moved towards the T+1 framework in a phased manner and a large number of largecap companies have moved into this settlement cycle.

MSCI said in a statement after its annual review that international institutional investors have implemented short cycles without any issues following market regulator Sebi's operational reforms.

During the phased implementation of the T+1 cycle, many market participants expressed apprehension regarding pre-funding of trades in terms of settlement risk mitigation and forex business management. However, analysts say that such a transition has been smooth in India.

Developed markets such as Canada and the US have planned to implement a T+1 cycle from May 2024. The US market regulator Securities and Exchange Commission made an announcement in this regard in early February.

MSCI believes that this can increase investor protection, reduce risk and increase operating and capital economies. In terms of challenges, it is important to note that there should be no pre-funding requirement or additional operational costs.

Meanwhile, MSCI has classified South Korea as an 'emerging market' along with markets like India, China and Taiwan. Currently, South Korea has a weightage of 13 percent in the MSCI Emerging Markets Index. While China has the highest weightage in this index with 29.2 percent, followed by Taiwan at 16.18 percent and India at 14.34 percent.

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