Zomato Parent Eternal’s Share Price Falls 5% – What Triggered This Sudden Drop?

Eternal Share Price: The shares of Eternal Ltd, the parent firm of food delivery major, Zomato Ltd declined as much as 5.11 per cent apiece to Rs 225.60 on Monday as it braces for passive outflows this week totaling USD 900 million.

Index providers FTSE Russel, and MSCI have reduced their weightage on the stock in their respective indices. This index weight reductions comes after a cut in Eternal's foreign ownership limit (FOL) - from 100 per cent to 49.5 per cent. The FOL sets the limitation on the maximum stake foreign investors can hold in a listed firm. A direct FOL cut unlike routine rebalancing results in immediate one-time adjustments by index providers, which can trigger accelerate selling from passive funds. 

The adjustment by FTSE Russell is expected to cause outflows of approximately Rs 3,235 crore, while MSCI's scheduled May review may result in outflows worth Rs 3,917 crore.

This one-time adjustment significantly intensifies near-term selling pressure, as the full reduction in investability weight is applied all at once, rather than being phased in over time.

FTSE Russell announced on Friday that it will implement the adjustment to Eternal’s investability weight on May 27. Eternal shares currently are included in several of FTSE’s major indices, including the FTSE All-World Index, FTSE MPF All-World Index, FTSE Global Large Cap Index, and FTSE Emerging Index.

Eternal Share Price Performance

Eternal share price has shown a mixed performance across different timeframes. In the last three months, Eternal share price has remained largely flat. However, the stock has declined 17 per cent year-to-date (YTD) and is down 18 per cent over the last six months.

Despite recent weakness, Eternal shares are up 25 per cent on a one-year basis and have delivered strong long-term returns, rallying nearly 280 per cent over the past three years.

At 2:01 pm, shares of Eternal Ltd was trading 14.49 per cent lower at Rs 226.80 apiece.