Sharp Drop in Eternal’s Stock Amid Index Rebalancing
Shares of food delivery platform Eternal Ltd., formerly Zomato, tumbled over 3 percent during early trading hours on Monday, May 26, as investors responded to news of impending passive outflows from global index providers. Eternal’s stock opened significantly lower on the National Stock Exchange, quoted at ₹229.79 at 9:25 a.m., marking a 3.3 percent decline. The drop follows announcements by FTSE Russell and expectations of upcoming changes from MSCI to reduce Eternal’s weight in their global benchmarks.
The shift is directly attributed to a sharp reduction in Eternal’s foreign ownership limit (FOL), which has been curtailed from 100 percent to 49.5 percent. This adjustment has effectively capped the holding capacity of foreign investors in Eternal’s equity, forcing index providers to revise the stock’s weight across portfolios that include passive investment instruments.
Highlights:
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Eternal shares dropped 3.3% to ₹229.79 following index reweighting news.
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FTSE Russell and MSCI are trimming Eternal’s weight in major indices.
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The move is linked to a drastic cut in Eternal’s foreign ownership limit from 100% to 49.5%.
Implications of FTSE’s Investability Weight Adjustment
On May 24, FTSE Russell officially announced changes to the investability weight of Eternal across several of its flagship indices. These include the FTSE All-World Index, the FTSE MPF All-World Index, the FTSE Global Large Cap Index, and the FTSE Emerging Index. According to estimates from IIFL Capital Services, FTSE’s rebalancing alone could result in passive outflows of approximately $380 million, which amounts to around ₹3,235 crore.
This outflow is expected to come from global passive funds and exchange-traded funds (ETFs) that mirror FTSE indices and are obligated to adjust their holdings in line with index reshuffles. Because of the FOL reduction, the investability factor for Eternal has dropped, mandating a corresponding cut in weight for these funds.
Highlights:
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FTSE Russell’s portfolio rebalance may lead to $380 million in passive selling.
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Eternal’s stock features prominently in multiple FTSE global indices.
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Index-linked ETFs are likely to offload shares to reflect the reduced investability weight.
MSCI May Index Review Likely to Add to the Pressure
While FTSE’s changes have already been announced, market participants are bracing for further adjustments from MSCI during its upcoming May review. Eternal’s reduced foreign ownership threshold is expected to result in MSCI lowering the stock’s representation in its indices as well. IIFL projects MSCI-linked passive outflows to reach up to $460 million, equivalent to approximately ₹3,917 crore, if the recalibration is fully implemented.
MSCI’s rebalancing could impact funds tracking the MSCI Emerging Markets Index and other global indices where Eternal is currently included. Together with FTSE’s revisions, total estimated passive outflows from the two index providers could approach $840 million, substantially increasing the selling pressure on Eternal’s stock in the near term.
Highlights:
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MSCI may cut Eternal’s weight in its May 2025 review, citing FOL constraints.
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Estimated MSCI-linked outflows could reach $460 million or ₹3,917 crore.
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Combined FTSE and MSCI outflows might total $840 million, intensifying sell-offs.
Direct FOL Cuts Prompt Abrupt Index Adjustments
In a departure from the more gradual reweighting often observed when foreign headroom decreases naturally, Eternal’s FOL cut is a formal corporate decision, triggering an immediate recalibration. Analysts at IIFL noted that the foreign ownership limit reduction has resulted in a one-time full-scale adjustment rather than a phased change. This abrupt shift has led to increased volatility and a sharp repricing of the stock as foreign institutional investors begin to align their portfolios accordingly.
The sudden nature of the move has removed any buffer period for market participants to gradually reduce exposure, thereby increasing the risk of a rapid sell-off. Passive funds with tracking mandates are particularly sensitive to such structural changes in eligibility criteria and must execute trades promptly to stay in compliance.
Highlights:
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The 49.5% FOL cap results in an immediate, one-time investability reduction.
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Unlike gradual adjustments, this FOL cut forced rapid index rebalancing.
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Institutional funds tracking FTSE and MSCI have limited flexibility in such scenarios.
Financial Performance Weakens Despite Strong Revenue Growth
In parallel to the index-related pressures, Eternal’s recent financial results have raised concerns among investors. For the quarter ended March 2025, the company reported a steep 78 percent year-on-year drop in consolidated net profit, falling to ₹39 crore from ₹175 crore in Q4 FY24. However, revenue from operations surged 64 percent year-on-year, reaching ₹5,833 crore during the fourth quarter of FY25.
The contrasting financial performance — where revenue growth has not translated into profit expansion — signals rising cost pressures and possible inefficiencies in operations or investments in new business segments. Investors and analysts remain watchful of Eternal’s ability to translate scale into sustainable profitability, especially amid increasing global competitive pressures in the online food delivery sector.
Highlights:
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Q4 FY25 net profit plunged 78% YoY to ₹39 crore from ₹175 crore.
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Revenue jumped 64% YoY to ₹5,833 crore, indicating top-line momentum.
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Profitability concerns persist despite revenue expansion and market presence.
Market Sentiment and Institutional Caution Ahead
As institutional investors adjust to the revised index weights and evaluate Eternal’s future under new FOL constraints, market sentiment is expected to remain cautious. The broader implication of the FOL change may also affect Eternal’s attractiveness in global equity baskets, especially those tracking emerging market growth stocks.
Analysts believe that while the operational fundamentals show signs of revenue resilience, capital market dynamics will remain unfavorable in the short term. Moreover, the abrupt nature of passive outflows and regulatory-induced ownership caps could increase volatility in the stock over the coming weeks, as foreign funds realign holdings and recalibrate exposure.
Highlights:
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Investor sentiment cautious due to regulatory-induced ownership changes.
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Eternal’s appeal in emerging market indices may decline under new FOL rules.
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Institutional repositioning may drive continued near-term volatility.
