New Delhi: During September 2024, Morgan Stanley announced that the India had overtaken China in terms of its weightage in the MSCI Emerging Markets Investable Market Index (MSCI EM IMI). The weight of India in MSCI EM IMI stood at 22.27 per cent compared to 21.58 per cent of China.
MSCI IMI consists of 3,355 stocks and includes large, mid and small cap companies. It captures stocks across 24 Emerging Markets countries and targets coverage of approximately 85% of the free float adjusted market capitalization in each country.
While the main MSCI EM index (standard index) covers the large and midcap space, the IMI includes a more comprehensive range, encompassing large, mid, and small cap stocks. India’s heavier weight vis-à-vis China in MSCI IMI stems from the greater small-cap weighting in its basket.
The rebalancing reflects broader market trends. While Chinese markets have struggled on the back of economic headwinds in China, India’s markets have benefitted from favourable macroeconomic conditions. In the recent past, India has posted a much superior equity market performance, driven by strong macroeconomic fundamentals of Indian economy as well as robust performance by Indian corporates. Further, the gains in Indian equity market have been broad based, reflected across large cap as well as mid-cap and small-cap indices. Key factors contributing to this positive trend include a 47% increase in foreign direct investment (FDI) in the early part of 2024, decreasing Brent crude prices, and substantial foreign portfolio investment (FPI) in Indian debt markets.
Consequently, MSCI has been increasing relative weights of Indian stocks in its indices. This, apart from MSCI EM IMI, is also evident from the rise in weight of India coupled with the relative decline in the weight of China in MSCI EM Index. During Mar-24 to Aug-24, India’s weightage in MSCI EM went up from 18% to 20%, while the weight of China has declined from 25.1% to 24.5% over the same period.
Post this rejig in MSCI EM IMI, Indian equities could witness inflows of about 4 to 4.5 billion USD, according to analysts’ estimate. In order to maintain its pace of desired investments for economic growth and development, India needs capital from both domestic and foreign sources. In this context, increase in weight of India in global EM indices gains positive significance.
..Govt. Sources