Morgan Stanley has revealed in a recent report that India has overtaken China in the MSCI Emerging Markets (EM) IMI Index. This week, India achieved the highest weightage in the index, positioning itself ahead of China. According to Morgan Stanley, India is on track to become the largest emerging market in the world.
What Does This Mean for India?
Morgan Stanley stated that the increasing weight of India in the MSCI Emerging Markets (EM) Index is expected to attract more foreign capital flows into the country’s financial markets. As of this week, India surpassed China to become the country with the largest weight in the MSCI EM Index.
How Will Investments Grow?
The investment bank noted that India’s weight in global indices is now around 2%. This is not considered a tracking error (which measures portfolio risk), meaning that global funds will need to buy Indian ETFs or stocks to align with the index. The report mentioned that foreign portfolio inflows are facing competition from domestic market participants, who are bidding higher than their global counterparts.
According to the index aggregator’s quarterly review for August, India’s weight in the EM Index reached a record 19.8%, up from 18.8% in May. Meanwhile, China, which previously held the top spot, saw its weight drop from 24.7% to 24.2%.
Impact of the Increased Weightage
Morgan Stanley highlighted that the increase in index weight reflects growing confidence in India. Some of the fundamental factors contributing to this rise include improved free float for Indian companies and increasing corporate earnings. The bank noted that India’s growing prominence in the EM index is not a concern but rather a reflection of its expanding share of global GDP and markets.
India remains Morgan Stanley’s top pick in the EM category and is the second favorite in the Asia-Pacific region, after Japan. The bank added that any corrections in Indian equities are expected to be minor, with the possibility of a future bull market peak. Additionally, India’s weightage in the EM Index is likely to grow further in the coming days.
What’s Next for India?
India’s rise in the MSCI EM Index suggests a significant shift in global investor focus toward the country. With increasing foreign investments and a larger role in the global economy, India is well-positioned to benefit from its newfound standing in the emerging markets landscape. Morgan Stanley’s report hints that India’s journey toward becoming the largest emerging market is far from over, and the country is poised for more growth in the near future.
Morgan Stanley further noted that any corrections in Indian equities are expected to be minimal, as money waiting on the sidelines will flow in to capitalize on the dip. “We believe the peak of the bull market is still ahead, and India’s weight in the EM index may have further room to grow before it reaches its maximum,” the bank said.
