India overtakes China in MSCI emerging markets IMI weightage

India has overtaken China in terms of its weighting in the MSCI Emerging Markets Investable Markets Index (MSCI EM IMI), official sources said, citing Morgan Stanley’s September 2024 data.

India’s weighting in the MSCI EM IMI now stands at 22.27 per cent, while China’s is 21.58 per cent. The MSCI EM IMI, which tracks 3,355 stocks across 24 emerging markets, includes large, mid and small-cap companies, representing about 85 per cent of the free float-adjusted market capitalisation of these countries.

India’s increased weighting is attributed to its stronger representation in the small-cap sector compared to China. Unlike the standard MSCI EM index, which covers large and mid-cap stocks, the IMI offers a more comprehensive approach by including small-cap companies as well.

The rebalancing reflects broader market trends, as China’s markets have faced economic challenges while India’s stock market has thrived under favorable macroeconomic conditions. India’s outperforming equity performance is driven by strong economic fundamentals and robust corporate performance, with large, mid and small-cap indices seeing gains.

According to sources, key contributors to this trend include a 47 per cent increase in foreign direct investment (FDI) by early 2024, falling Brent crude prices, and significant foreign portfolio investment (FPI) in India’s debt markets.

It also added that this momentum has prompted MSCI to increase India’s weighting in its indices, including the MSCI EM Index, where India’s share has increased from 18 per cent in March 2024 to 20 per cent in August 2024. Meanwhile, China’s weighting declined from 25.1 per cent to 24.5 per cent during the same period.

Analysts estimate that this change in the MSCI EM IMI could result in capital inflows of US$4-4.5 billion into Indian equities. This increased weighting in global emerging market indices is significant for India, as it seeks to attract both domestic and foreign capital to maintain its economic growth momentum.