The new method to calculate foreign ownership proposed by MSCI could lead to a sharp outflow from Indian shares, The Economic Times reported.

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Global index provider MSCI, in a discussion paper, said it will seek to exclude the shares being offered through global and American depository receipts (GDRs, ADRs) when calculating foreign ownership limits, according to the report.

The proposed move could lead to a $12 billion selloff, with blue-chip stocks such as Tata Motors, Larsen and Toubro, ITC and Dr Reddy’s Laboratories taking a hit.

MSCI has proposed to drop any stocks with an overseas investment cushion of less than 3.7 percent from its indices within two days.

When considering the calculation, the overall weight of India in the MSCI Emerging Markets (EM) index could fall by 25 basis points to 8.55 percent, as per the report. One basis point is one-hundredth of a percentage point.

While determining the weight of a company, MSCI takes into consideration parameters including the foreign inclusion factor (FIF), which determines the total proportion of shares of a company that offshore investors can buy from exchanges, said the report.