India Overtakes China in MSCI Emerging Market Index
India has surpassed China as the largest weighting in the MSCI Emerging Market Investable Market Index (EM IMI), according to a report by Morgan Stanley. This significant shift occurred in September 2024, with India's weight in the index reaching 22.27%, compared to China's 21.58%.
The MSCI EM IMI is a comprehensive index that includes large, mid, and small-cap stocks from 24 emerging market countries. India's heavier weighting in the index is attributed to its greater small-cap representation.
This change reflects broader market trends. While Chinese markets have faced challenges due to economic headwinds, India's markets have benefited from favorable macroeconomic conditions. India's equity market has demonstrated strong performance, driven by robust economic fundamentals and impressive corporate performance.
Several factors have contributed to this positive trend, including a significant rise in foreign direct investment, a decline in oil prices, and substantial foreign portfolio investment in Indian debt markets.
Consequently, MSCI has been increasing the relative weights of Indian stocks in its indices. This is evident not only in the EM IMI but also in the MSCI EM Index, where India's weight has risen from 18% to 20% between March and August 2024, while China's weight has declined from 25.1% to 24.5%.
While India's growing share in global GDP and markets is a positive long-term trend, Morgan Stanley analysts caution that a correction in the Indian stock market may be on the horizon due to investor concerns and market dynamics.
Despite this, India remains highly favored in emerging markets, with its strong economic fundamentals and increasing prominence in global indices attracting investors with a long-term perspective. Morgan Stanley ranks India as its second choice in the Asia-Pacific region after Japan, highlighting its significance within the region's investment landscape.