Eternal shares fall 4% in early deals, here's why

Shares of Eternal Ltd., formerly known as Zomato, dropped 4% on Monday as the company braces for significant adjustments by global index providers FTSE Russell and MSCI. These changes, driven by a reduction in the foreign ownership limit (FOL) from 100% to 49.5%, could result in passive outflows nearing $840 million, according to IIFL Capital Services. The stock's decline to Rs 227.95 from a previous close of Rs 237.45 reflects market anxiety over the anticipated outflows and decreased investability weight. Eternal's market capitalisation now stands at Rs 2.19 lakh crore.

The rebalancing announced by FTSE and anticipated adjustments by MSCI stem from Eternal's reduced FOL, which limits overseas investors' capacity to hold shares. FTSE's changes alone could trigger outflows approximately amounting to $380 million, while MSCI's May review might add another $460 million. This direct cut in FOL prompts a swift recalibration in investability weight, potentially increasing short-term selling pressure. Eternal remains part of various FTSE indices, including the FTSE All-World Index and the FTSE Emerging Index, but its reduced representation could impact its market appeal.

In financial terms, Eternal reported a drastic 78% year-on-year decline in consolidated net profit for Q4 FY25, totalling Rs 39 crore compared to Rs 175 crore in the same period last year. Despite this, the company's revenue from operations surged by 64% year-on-year to Rs 5,833 crore. This mixed financial performance may weigh on investor sentiment, especially amid the impending index reclassifications. The dual challenges of reduced foreign investment capacity and declining profits could pose significant hurdles for Eternal in maintaining investor confidence and market presence.