Morgan Stanley figures for September 2024 show that India has outperformed China in the MSCI Emerging Markets Investable Market Index (MSCI EM IMI). India now has a 22.27% weighting in the index, surpassing China’s 21.58%. This shift signals a watershed moment in the depiction of emerging markets.
India’s Rising Weightage
Including large, mid, and small-cap companies, the MSCI EM IMI monitors 3,355 stocks from 24 developing markets. 85% or so of these nations’ market capitalisation after accounting for free float is represented by this index. Since India is more heavily represented in the small-cap sector than China, which is more focused on large and mid-cap companies, India’s weight in the MSCI EM IMI has increased.
Factors Driving India’s Increase
India’s improved index weightage is attributed to several factors:
- Economic Performance: India’s stock market has benefited from robust economic conditions and strong corporate performance, resulting in gains across large, mid, and small-cap indices.
- Investment Surge: There has been a notable 47% increase in foreign direct investment (FDI) in early 2024, coupled with declining Brent crude prices. This has bolstered investor confidence in India’s economy.
- Foreign Portfolio Investment (FPI): Significant foreign portfolio investment in Indian debt markets has also played a role in enhancing India’s market weightage.
MSCI Index Rebalancing
The shifting dynamics of the world’s emerging markets are reflected in the MSCI’s decision to give India more weight. In the MSCI EM Index, India’s percentage increased from 18% in March 2024 to 20% in August 2024. On the other hand, throughout the same time frame, China’s share dropped from 25.1% to 24.5%.
Impact of the Shift
Analysts expect that the revision in the MSCI EM IMI will result in capital inflows of USD 4 to USD 4.5 billion into Indian shares. This increased weightage is critical for India, as it seeks to attract both domestic and international investors to support its continued economic growth.
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