Eternal Shares Slide on Index Weight Cuts, $840 Million Passive Outflows Expected

Shares of Eternal Ltd, formerly known as Zomato, fell sharply on Monday following reports of large-scale passive outflows due to reductions in the stock’s index weightings by global benchmark providers FTSE Russell and MSCI. The stock declined as much as 4.01% to an intraday low of ?227.90 on the BSE - its steepest fall since May 20 - before trimming losses to trade at ?230, down 3.07% at 10:51 AM.

The decline follows Eternal’s recent move to cap foreign ownership at 49.5% on a fully diluted basis, triggering a reclassification under the Foreign Exchange Management Act (FEMA). The limit applies to all forms of overseas investment, including FDI, FPI, NRI holdings, and foreign-controlled Indian entities.

The regulatory change prompted FTSE Russell to lower Eternal’s weight across multiple indices, including the FTSE All-World Index, FTSE MPF All-World Index, FTSE Global Large Cap Index, and the FTSE Emerging Index. The adjustment is expected to result in passive outflows of approximately $380 million (?3,235 crore), according to IIFL Capital Services.

Further selling pressure is likely, with MSCI expected to reduce Eternal’s index weight in its upcoming May review, potentially triggering an additional $460 million (?3,917 crore) in outflows. In total, the stock could witness passive outflows of $840 million (approx. ?7,152 crore), analysts estimate.

Shares of Eternal have had a turbulent run. While the counter is up over 15% from its March lows, it remains 17% down YTD, underperforming the 橘子影城50, which has gained 5.8% in the same period. The stock is also trading nearly 25% below its December 2024 all-time high. Eternal currently holds a market capitalisation of ?2.2 trillion.

The outflows come at a time when the company is facing profitability pressures. Eternal reported a 78% YoY drop in net profit to ?39 crore for Q4FY25, compared to ?175 crore a year earlier. Sequentially, profit also fell 33.8%. Operating profit, or EBITDA, declined 15% YoY to ?165 crore, amid increased investments in the company’s quick commerce network expansion.

Revenue, however, showed strong growth, rising 64% YoY to ?5,833 crore in Q4FY25 from ?3,562 crore a year earlier. EBITDA margins contracted 120 basis points to 1.23% from 2.41% in Q4FY24.

Market participants expect the near-term outlook to remain cautious, with analysts warning that index-related selling and margin compression could weigh on the stock. However, some believe the worst may be behind, with operational improvements expected from Q1FY26 onwards.

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