Eternal Shares Tumble as FTSE, MSCI Rebalancing Signals $840 Million in Potential Outflows
Shares of Eternal Ltd., formerly known as Zomato, declined almost 4% on Monday, hitting an intraday low of ₹227.95 on the BSE.
The drop followed reports of significant passive outflows stemming from a reduced foreign ownership limit, leading global index provider FTSE Russell to cut the company’s weight in several of its indices.
FTSE Rebalancing Triggers Major Outflows
According to reports citing a research study, FTSE’s rebalancing could prompt passive outflows worth $380 million, approximately ₹3,235 crore.
Further outflows are anticipated, as MSCI is also expected to lower Eternal’s weight in its indices during its May review, potentially causing an additional $460 million or ₹3,917 crore in outflows.
These adjustments are a result of Eternal’s recent move to limit total foreign ownership to 49.5% on a fully diluted basis.
Foreign Ownership Cap Explained
The newly enforced foreign ownership limit (FOL) applies to all types of overseas investments.
This includes Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), indirect foreign holdings by NRIs, and investments through foreign-owned or foreign-controlled Indian entities, as defined under the Foreign Exchange Management Act (FEMA).
The cap also covers equity shares, compulsorily convertible debentures, and preference shares acquired via both primary and secondary markets.
However, investments made under the non-repatriation route are excluded, Eternal explained in a recent stock exchange filing.
Impact on FTSE Index Inclusions
Eternal features prominently in multiple FTSE indices such as the FTSE All-World Index, FTSE MPF All-World Index, FTSE Global Large Cap Index, and the FTSE Emerging Index.
The reduced weight in these benchmarks significantly affects passive investment funds that replicate these indices.
IIFL Capital Services noted that the foreign ownership cut from 100% to 49.5% has restricted the level of overseas investor participation in the stock.
As a result, index providers have been compelled to revise Eternal’s weightings, which is causing substantial outflows.
Stock Performance and Market Reaction
On Monday, May 26, Eternal’s shares opened over 3% lower. At 9:25 am, the stock was trading at ₹229.79 on the NSE, down 3.3%. As of 10:51 am, shares were 3.07% lower at ₹230. Eternal was the top loser in both the SENSEX and NIFTY50 indices during the session.
The reaction comes amid investor concerns over the scale and immediacy of the index rebalancing.
IIFL pointed out that, unlike usual adjustments which factor in the available headroom for foreign investment, a direct cut in the FOL results in a full-scale and abrupt recalibration. This increases the risk of near-term selling pressure.
Earnings Report Shows Sharp Decline in Profit
On Thursday, May 1, Eternal announced its Q4 results for the January-March period. The company reported a consolidated net profit of ₹39 crore, marking a steep 78% decline from ₹175 crore recorded during the same period last year.
Despite the drop in profit, Eternal’s revenue from operations rose by 64% year-on-year, reaching ₹5,833 crore in Q4FY25, compared to ₹3,562 crore in the corresponding quarter of FY24.
However, its EBITDA — earnings before interest, taxes, depreciation, and amortisation — declined 16% to ₹72 crore from ₹86 crore last year. The EBITDA margin also contracted by 120 basis points, slipping to 1.23% from 2.41%.
Eternal’s reduced foreign ownership limit has triggered large-scale weight cuts from major global indices, leading to projected passive outflows of nearly $840 million.
Coupled with a sharp decline in quarterly profit, the stock has seen a significant drop, underlining investor apprehension and market volatility surrounding the regulatory change.
