India Surpasses China in MSCI Emerging Markets Index Weightage

India's weightage in the MSCI Emerging Markets Index has exceeded China's for the first time, driven by a surge in foreign investments and favorable economic conditions. This shift highlights India's strong equity performance and potential for increased capital inflows.

India has surpassed China in terms of its weightage in the MSCI Emerging Markets Investable Market Index (MSCI EM IMI), according to Morgan Stanley data for September 2024.

India now accounts for 22.27% of the MSCI EM IMI, while China stands at 21.58%. The index tracks 3,355 stocks across 24 emerging markets, covering large, mid, and small-cap companies and representing approximately 85% of the free float-adjusted market capitalization of these nations.

India's increased weightage is primarily credited to its stronger representation in the small-cap sector, a segment not covered by the standard MSCI EM index that includes only large and mid-cap stocks. This rebalancing mirrors broader market trends: while China's economy has grappled with challenges, India has benefitted from favorable macroeconomic conditions.

Key factors contributing to India's rise include a 47% increase in foreign direct investment (FDI) in early 2024, declining Brent crude prices, and substantial foreign portfolio investment (FPI) in the country's debt markets. Sources indicate that these factors have led MSCI to elevate India's weightage in its indices, including the MSCI EM Index, where India's share climbed from 18% in March 2024 to 20% in August 2024.

Analysts estimate that this shift could channel USD 4 to USD 4.5 billion into Indian equities. This heightened presence in global emerging market indices is crucial for India as it aims to draw both domestic and international capital to sustain its economic growth trajectory.

(With inputs from agencies.)