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 Nifty50, 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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