Eternal Draws the Line on Foreign Ownership—Could MSCI Be the Next to Exit?

A thumping majority of shareholders of Zomato operator Eternal Ltd have voted in favour to impose a cap on foreign ownership in the company at 49.5%. However, the limit on foreign ownership poses a threat of selling pressure on the stock amid growing concerns over a probable exit or weight reduction in the MSCI Emerging Market Index.

As of the end of the March quarter, foreign investors held a 44.8% stake in Eternal. However, the stock's performance following the release of the latest shareholding data hints that the foreign ownership in the counter may have increased to 46%, analysts at Jefferies remarked.

Looking ahead though, investors may look to readjust their ownership of the company’s shares, which can tip off outflows from the counter, Jefferies warned. The global brokerage also said that over 99% of Eternal shareholders have approved a plan to make the company Indian-owned and controlled. This change could give the company more freedom to run Blinkit (its quick delivery service) using its own inventory, meaning it can stock and sell products directly.

Under India’s foreign direct investment (FDI) rules, foreign-funded online marketplaces are prohibited from owning inventory or controlling sellers on their platforms. As a result, quick commerce platforms like Blinkit cannot directly own the dark stores, the small warehouses used for their 10-minute deliveries. Instead, these are run by separate partner entities.

Eternal had explained that by becoming an Indian-owned and controlled company (IOCC), Blinkit will gain the flexibility to own inventory, which can help improve profit margins, particularly in unbranded or fragmented product categories, as well as in established fast-moving consumer goods (FMCG), where direct inventory ownership can lead to better cost efficiencies.

How Can Foreign Ownership Cap Change Eternal’s MSCI Standing?

Analysts at Jefferies explained that according to MSCI rules, if a company like Eternal places a cap on foreign ownership and foreign portfolio investors (FPI) holdings come within 3% of that limit, the stock is placed on a ‘red flag’ list. Once this happens, stock exchanges and depositories will begin publishing precise FPI holding data each evening.

If FPIs exceed the cap, they are required to sell the excess shares within five trading days, and they must do so exclusively to domestic investors, they are not permitted to sell to other foreign investors, Jefferies added.

With Eternal transitioning to an Indian-owned and controlled company (IOCC), MSCI may respond in one of two ways. If FPI holdings remain below the cap at the time of implementation, MSCI could either reduce Eternal’s weight in its index, potentially resulting in capital outflows of around $650 million during the August 2025 rebalancing, or completely remove it from the index, which could lead to heavier outflows of around $1.3 billion.

However, if FPI holdings breach the limit prior to implementation, MSCI would move to definitively exclude Eternal from its index.

Having flagged those concerns, Jefferies also added that the true impact on FPI liquidity remains uncertain, as it is difficult to predict investor behaviour or the pace at which they might offload shares.