Eternal share price volatile on foreign shareholding cap: What does it mean for business and MSCI weightage? EXPLAINED
Eternal, formerly known as Zomato, shares were volatile on Monday following the company's decision to cap foreign shareholding at 49.5%. Eternal share price initially fell over 2% but later recovered, rising as much as 1.48% to an intraday high of ₹ 235.20 on the BSE.
The company's board approved the proposal on April 18, which now awaits shareholder approval via postal ballot, with results expected by May 21, 2025. Once approved, the cap will be implemented immediately.
As of March 31, 2025, Foreign Institutional Investors (FIIs) held 44.88% in Eternal, while Indian ownership stood at 55% — meeting the requirement to qualify as an Indian - Owned - and - Controlled Entity (IOCC).
Eternal said the move aims to preserve its IOCC status, aligning with regulatory norms and enabling greater operational flexibility — especially for its quick commerce arm, Blinkit.
Currently, Blinkit operates as a marketplace with third-party sellers. As an IOCC, Blinkit can transition to an inventory-led model — owning and managing its own stock. According to Kotak Institutional Equities, this shift would allow Blinkit to expand into new categories such as home décor, gourmet foods, toys, and seasonal products.
While the change would increase working capital requirements, it is expected to boost margins and return on capital employed (ROCE) over the long term. Kotak estimates a 40–50 basis points improvement in margins, even though it would lead to a heavier balance sheet.
Blinkit, as an IOCC, will stand on par with domestic retail giants like Reliance and DMart, and gain a potential edge if future regulations favor IOCCs. Among e-commerce players, Blinkit would be the only IOCC, while competitors like Swiggy, Zepto, Flipkart, and Amazon have significantly lower domestic ownership.
Analysts warn that capping foreign ownership could reduce Eternal's weight in global indices, prompting passive fund outflows.
MSCI Impact: Eternal's weight in the MSCI Standard Index (currently 1.33%) may be halved due to reduced FII headroom. This could lead to outflows of ~$600 million or around 226 million shares, equal to 2.7 days of trading volume.
FTSE Impact: Eternal could be fully removed from the FTSE Emerging Markets Index. Outflows may total ~$100 million per quarter (37 million shares), spread across 4–5 quarterly reviews. However, if FII headroom improves above 10%, further reductions could be paused.
While index-related outflows may cause short-term pressure on the stock, analysts see no major long-term derating risk.
'A potential price correction of approximately 5%+/- may result from this development. However, I don't perceive this as a significant derating scenario for the stock. Based on my interactions with domestic clients, there's evident interest in accumulating the stock should it decline below ₹ 205 or ₹ 210, compared to the current market price of ₹ 230,' said Abhilash Pagaria of Nuvama Alternative & Quantitative Research.
Eternal share price has risen 2.5% in one month and more than 8% in three months. Over the past six months, Eternal shares declined 12%, while the stock rallied 23% in one year. Eternal stock price has delivered multibagger returns of 316% in two years.
At 12:35 PM, Eternal shares were trading 0.58% higher at ₹ 233.10 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
First Published: 21 Apr 2025, 12:36 PM IST
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