MSCI EM Index: India surges to second place; weightage likely to cross 20% by mid-2024

India has surpassed Taiwan in the MSCI Emerging Markets index, securing the second position after China and affirming its status as an attractive investment option in emerging markets.

India’s share in MSCI Emerging Markets index saw a significant jump over eight years, rising from 7% to 17.1% and is projected to rise further to 20% by early 2024, a recent report from Nuvama Institutional Equities said.

“With India’s current momentum and outperformance compared to other emerging markets, we project our index representation could cross 20% by mid 2024,” said Abhilash Pagaria - Head Nuvama Alternative & Quantitative Research.

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India’s representation in the MSCI EM pack held steady at around 8% from 2015 until October 2020. However, since November 2020, India’s representation has nearly doubled and currently stands at 17.1%. 

This remarkable achievement can be attributed to multiple factors including India’s standardized Foreign Ownership Limit (FOL) in 2020, robust performance by Indian equities, particularly in the midcap segment, leading to numerous inclusions in every review and relative underperformance by other EM packs, especially China, said Nuvama Institutional Equities.

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In 2023, India’s stock count in the MSCI Standard index has risen to 131, with the inclusion of a net of 17 Indian stocks over the past four reviews. This marks an improvement from 2022, where only a net of 9 Indian stocks were included. 

“The notable factors contributing to this increase in 2023 include India's substantial rally compared to other Emerging Markets and MSCI's shift from semi-annual to quarterly rebalancing for stock inclusions/exclusions,” said the report.

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Moreover, with a consistent flow from domestic institutional investors (DII) and now if steady foreign institutional investors (FII) participation resumes, there is potential for India to surpass a 20% weight in the MSCI EM Index by early 2024 itself.

On the other hand, China’s weight in the MSCI EM index has reduced to 26.6% from 33.5% a year ago.

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