The Index Exclusion: Why LG India and Tata Capital’s IPO Success Hinges on a Waiting Game

Despite the contrasting receptions to their high-profile IPOs, both LG Electronics India and Tata Capital face a shared and significant hurdle: a critically low public float, with promoters holding about 85% of each company, which excludes them from major global and domestic indices and delays the influx of billions in passive index-tracking funds.

This exclusion is expected to last until at least mid-2026, forcing the stocks’ near-term performance to rely solely on the conviction of active fund managers and their fundamental growth stories, rather than the automated buying that index inclusion would trigger, with the deadlock only likely to break if promoters pare their stakes or the shares rally sharply.

The Index Exclusion: Why LG India and Tata Capital’s IPO Success Hinges on a Waiting Game 

The dust has settled on two of 2025’s most anticipated stock market debuts. LG Electronics India (LGEIL) exploded onto Dalal Street with a gravity-defying 50%+ surge, a testament to investor fever. Tata Capital, the financial titan from India’s most revered business house, took a more measured path, eking out a modest 1.6% gain on its listing day. 

The headlines wrote themselves: one a blockbuster, the other a slow burn. But for astute market observers, this initial fanfare is just the opening act. The real story, one that will shape the destiny of these stocks for the next 12-18 months, is not about their day-one performance, but about a shared, critical deficiency: a critically low public float. 

Despite their market capitalizations running into billions of dollars, both LGEIL and Tata Capital are poised for a prolonged exclusion from the world’s most influential stock indices. This isn’t a mere technicality; it’s a fundamental factor that will delay billions of dollars in passive fund inflows and redefine the investor strategy for these marquee names. 

The Float Fiasco: Understanding the Invisible Barrier 

To understand the predicament, one must first grasp the concept of “free float.” It’s the portion of a company’s shares that are freely available for trading by the public—not held by promoters, governments, or other strategic locked-in entities. For index providers like MSCI and FTSE, a healthy free float is non-negotiable. It ensures there are enough shares available for trade to absorb the massive buying (or selling) from index-tracking funds without causing extreme price volatility or liquidity crunches. 

The problem for our two IPO stars is stark: post-listing, their promoters still hold about 85% of each company. This leaves a meager 15% or less in the hands of public investors, a figure that falls below the comfort zone for major global indices. 

Let’s break down the numbers: 

• LG Electronics India: Analysts estimate its effective free float at listing is around 10%, gradually climbing to 13% after a month and 15% within three months. While moving in the right direction, this is still seen as insufficient to trigger meaningful inclusion. 

• Tata Capital: The situation is even tighter here. The free float post-IPO is a scant 3.91%. It’s expected to jump to 11.2% after the anchor investor lock-in period ends and eventually to 12.1%. Like LGEIL, it remains below the critical threshold. 

The Global Index Door is Closed Until Mid-2026 

This float limitation has a direct and sobering consequence: meaningful inclusion in global indices is unlikely before June 2026. 

Index providers conduct regular reviews, and the consensus among analysts is that the earliest these stocks could be seriously considered is during the semi-annual rebalancing in the first half of 2026. Their inclusion is contingent not just on the float percentage crossing the 15% mark, but also on their market capitalization meeting the benchmark’s size threshold. 

The delay has a massive financial impact. Passive funds—ETFs and index funds that mechanically track these benchmarks—manage trillions of dollars globally. An inclusion in an index like MSCI Emerging Markets can trigger inflows worth hundreds of millions of dollars in a single day. For now, that potential tidal wave of institutional money is on hold. 

The Domestic Landscape: A Ray of Cautious Hope 

While the global index door is shut, the domestic picture is more nuanced, yet still challenging. 

Entry into the blue-chip indices, the Nifty 50 and the Sensex 30, is a distant dream. A primary requirement is for the stock to be part of the futures and options (F&O) segment, a milestone neither company has achieved yet. 

However, there is a potential landing spot in the near term: indices like the Nifty Next 50 or the Nifty Midcap 150. These indices cater to the next rung of large-cap companies or promising mid-caps. LGEIL, with its current profile, is poised to be classified as a mid-cap, while the formidable Tata Capital is likely to slot directly into the large-cap category in the next AMFI reclassification in January 2026. 

While inclusion here would attract some domestic passive money, the inflows would be a fraction of what a global index inclusion would bring. The real opportunity in the domestic sphere lies elsewhere. 

The Active vs. Passive Play: A Strategic Shift for Investors 

The index exclusion creates a clear divergence in investment strategy. With passive funds sidelined, the stage is set for active fund managers to take center stage. 

“Selective accumulation from active managers is expected once the reclassification takes effect,” notes Brian Freitas, an analyst at Smartkarma. Active funds are not bound by rigid index rules. They can build positions based on their conviction in a company’s fundamental growth story, even if the float is low. 

This is where the robust brokerage coverage becomes a critical data point. 

• LG Electronics India has been flooded with attention, with ten major brokerages initiating coverage, nearly all with “Buy” or equivalent ratings. The average 12-month target price of Rs 1,815 suggests a healthy upside from current levels. Analysts are betting on LGEIL’s entrenched brand, premium product portfolio, and expanding margins in the competitive Indian consumer durables space. 

• Tata Capital has seen more restrained coverage, with only two brokerages so far publishing detailed reports. Their average target of Rs 360 also implies potential growth. The bull case here rests on the powerful Tata brand, a vast ecosystem for cross-selling, and India’s structural story of rising credit penetration. 

The Path Forward: What Will Break the Deadlock? 

For investors, the waiting game has a clear exit condition. The logjam will break when the free float meaningfully expands. This can happen in two ways: 

• Promoter Stake Dilution: The most direct path. If the parent companies—LG Electronics South Korea and Tata Sons—decide to divest a portion of their holding through an Offer for Sale (OFS), it would instantly boost the public float and fast-track index eligibility. 

• A Sharp Rally in Share Price: A significant increase in the stock price boosts the company’s free-float market capitalization (share price x number of publicly traded shares), which is a key metric for index providers. A powerful rally could potentially compensate for a slightly lower float percentage. 

The Bottom Line for Investors 

The contrasting IPOs of LG Electronics India and Tata Capital are a masterclass in looking beyond the initial hype. The story is no longer about their debut pops or drops; it’s about a shared journey through a liquidity desert before they can reach the oasis of index-driven inflows. 

For the foreseeable future, these stocks will be driven not by passive, algorithmic buying, but by the old-fashioned forces of fundamental analysis, quarterly earnings delivery, and the conviction of active stock-pickers. The opportunity lies in getting in before the index funds do, but it requires patience and a strong stomach for potential volatility. 

The clock is ticking. The countdown to the June 2026 rebalancing has begun, and every stake sale or earnings beat will be a step closer to unlocking the billions waiting in the wings.