On November 14, 2023, the Federal Retirement Thrift Investment Board (FRTIB) published a document stating they had conducted a routine review of the four benchmark indexes. Those four indexes are as follows: the Thrift Savings Plan’s (TSP) Common Stock Index Investment Fund (C Fund), the Small Capitalization Stock Index Investment Fund (S Fund), the Fixed Income Index Investment Fund (F Fund), and the International Stock Index Investment Fund (I Fund). The recommendations given by the investment consultant, Aon, were reviewed by the board, and it was decided that no changes were to be made to the current benchmarks for the C Fund, S Fund, and F Fund, and it was unanimously voted to change the benchmark used for the I Fund.

Currently, the ‘I’ Fund tracks the MSCI Europe, Australia, and Far East (EAFE) Index. The FRTIB Board selected the MSCI All Country World ex-USA, ex-China, and ex-Hong Kong Investable Market Index (MSCI ACWI IMI ex-USA, ex-China, and ex-Hong Kong Index) as the benchmark for the I Fund. The decision to expand investment opportunities and improve the I Fund’s risk-return profile was taken in line with its statutory mandate and fiduciary duty to the TSP participants. As of October 2023, the asset under management (AUM) tracked by the ‘I’ fund was close to $68 billion.

The Board noted that the MSCI ACWI IMI ex USA ex China ex Hong Kong Index is expected to outperform the MSCI EAFE Index on a risk-adjusted basis over the long term. Historical analysis confirmed that the risk-adjusted returns for the MSCI ACWI IMI ex USA ex China ex Hong Kong Index have exceeded those of the MSCI EAFE Index over the past twenty years.

This is the first time India will be receiving inflows from the FRTIB, as the country was not part of the old index. This inclusion is indicative of the growing recognition of India's economic potential and attractiveness as an investment destination, especially within the context of global equity benchmarks. The anticipated inflow of funds is expected to contribute to India's economic development and further strengthen its position in the global investment landscape.

The Indian equity market is expected to see an inflow of $3,595 billion. India stands out among emerging markets as one of the major beneficiaries of this index switch, marking a significant development for the country's financial markets. Not just in India, but the US government's move will benefit economies globally, as the change is expected to reshuffle $28 billion in equity investments around the world.

The planned benchmark switch is to be executed in 16 tranches over a four-month period. The one-way trade of approximately $28 billion is anticipated to result in outflows from developed markets (DMs) and inflows into emerging markets (EMs). In the context of the iShares Emerging Markets ETF, several countries, including India, Taiwan, Korea, Brazil, Saudi Arabia, South Africa, and Mexico, are projected to be the primary beneficiaries of these inflows. On the contrary, certain developed markets are expected to witness the largest outflows. Japan, the UK, France, Switzerland, Germany, and Hong Kong are among the countries projected to see substantial capital outflows.

As per early estimates, RIL may attract $243 million in inflows, followed by ICICI Bank ($160 million), Infosys ($159 million), HDFC Bank ($142 million), and TCS ($105 million). Other key beneficiaries of the announcement could include Axis Bank Ltd. ($77 million), Bharti Airtel Ltd. ($72 million), Larsen & Toubro Ltd. ($70 million), and Hindustan Unilever ($69 million).