KUALA LUMPUR (Sept 23): Banking stocks in FBM KLCI may see a gross selling of over RM200 million from passive funds tracking the benchmark index being expanded, an analyst said.

The selldown of six banking stocks could be partly offset by potential buying of around RM22 million into Alliance Bank Malaysia Bhd (KL:ABMB) by passive investors if it is included in the gauge, according to estimates by TA Securities in a note on Wednesday.

“For the banking sector, the key implication is a structural dilution in index representation rather than a change in fundamentals,” the research house said.

The FBM KLCI is set to be expanded to 50 constituents in the benchmark index’s upcoming December review. The 20 newly added constituents will be included at 50% of their final index weight in the review.

The remaining 50% of the weight will be implemented at the June 2027 index review. The planned change to the methodology would be the first since July 2009, when the benchmark transitioned from a 100-constituent index to its current 30.

TA Securities said the financial sector’s weighting in the KLCI is expected to fall from 42.7% currently to 39.4% in the first phase of the expansion and 36.6% upon full implementation in June 2027.

“We therefore expect any flow-driven volatility to be temporary and stock-specific rather than a material sector-wide liquidity event,” the house said.

Overall, the revamp will result in estimated net passive outflows of about RM180 million across the seven affected banking stocks, equivalent to about 0.06% of their combined free-float market capitalisation of roughly RM280 billion, the house noted.