The MSCI Emerging Markets Index is a benchmark index that tracks the performance of equity markets in emerging economies. It captures large and midcap representation across 24 Emerging Market countries. With 1328 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Over the past decade, India’s performance in the MSCI Emerging Markets Index has been significantly strong, reflecting the country’s growing economic significance and its increasing attractiveness to global investors.
The weightage of India has risen by 190% approximately. India’s weight in MSCI EM Index has reached its highest point ever, at 19.8% weightage as of August 2024, up from 6.84% in August 2014.
India has surpassed Taiwan and have secured the second position after China in the MSCI EM Index. With this it has affirmed its status as an attractive investment option in emerging markets. Indian indices have shown strong performance compared to other emerging markets. This outperformance has led to higher market capitalization, which in turn resulted in increase in India’s weightage. Sectors which have performed well globally like technology and financial services has contributed to it’s increasing representation in the index.
Foreign portfolio investors (FPIs) consistently displayed a preference for Indian equities (with some exceptions) and 2023 witnessed substantial net inflows of approximately $20.7 billion. Within the emerging market basket, India was the highest beneficiary of these inflows. Even as India’s weight in MSCI EM Index has increased by a significant amount, flows made by FPIs have remained steady. Cumulative flows made by FPIs stand near RS 59000 crore, while those made by domestic institutions near Rs 8.4 lakh crore, outweighing foreign ones by over 14 times. Flows made by DIIs include a substantial contribution made by the retail segment, investing indirectly into equities through mutual funds. They invested a total of Rs 35,622 crore in August 2024. Mutual Funds have emerged as a key support for the equity market which is evident from the SIP inflows which had touched a new high of Rs 23,332 crore in the month of July.
The increasingly well performance of India is likely to attract about $3 billion in inflows in the domestic equity market. The gap between China and India in the MSCI EM Index has narrowed with China’s weight slipping to 25%, down from 43% in September 2020 and India’s weight rising to more than 19%, up from 8% as of 2020. China’s standing in emerging markets has shrunk in the past few years, while India has steadily expanded. At its peak in 2020, China accounted for 40% of the MSCI EM Index, but that weighting has dropped amid Beijing’s regulatory crackdowns and efforts to deleverage its indebted property sector. India, on the other hand, has emerged as a favourite among investors, driven by its robust economic growth, growing manufacturing sector and increased foreign investment. This narrowing gap has become a talk of the town as investors debate whether to put capital into an already fiery Indian market or into Chinese stocks, that are relatively cheap but are being hit by an economic slowdown.
In the beginning of 2023, India’s weight stood at around 14% with stock count at 113. The net stock count has increased to 146 as of May 2024; with 13 inclusions and 3 exclusions of stocks in the index. MSCI Indies are widely tracked by passive funds and any inclusion of stocks or increase in in weightage of stocks in these global indices potentially lead to inflows.
