India’s weight in the MSCI Emerging Markets Index is expected to increase by at least one percentage point after the index provider’s review this week, according to analysts from companies like IIFL Securities Ltd. and Smartkarma. This would put the nation nearly at China’s level, which presently occupies 22.33% of the benchmark. India has a 19.99% lag.
India will be better positioned to become the new anchor for developing market equities with a bigger proportion, which would probably result in more capital flowing into the nation. The growing weight of India, according to fund managers, might entice foreign investors who have been hesitant to invest in the EM gauge because of China’s dominance over the index.
According to Vivek Dhawan, portfolio manager at Candriam Belgian NV, “It can make the EM index more balanced, where secular growth stories like India receive higher allocation” in contrast to more cyclical markets like China and Korea.
India’s influence in emerging markets has been gradually growing over the past few years, whereas China’s has decreased. China was 40% of the MSCI EM Index at its high in 2020, but due to Beijing’s regulatory crackdowns and measures to deleverage its massive property sector, that proportion has decreased.
India’s weight was only 2.34 percentage points behind China’s as of the end of July in the MSCI Asia Pacific Index, a regional benchmark. This pattern was consistent across the majority of gauges from major index providers. An email for comment sent outside of regular business hours was not answered by MSCI.
“With a rising equity market, increase in free float for companies and new large listings in India, the gap in the weightings should continue to narrow heading into year-end,” said Brian Freitas, an analyst at Smartkarma.
Taiwan and India are currently engaged in vigorous competition to unseat China as the leading country in emerging market stock portfolios. By the end of July, Taiwan made up 18.39% of the EM index on MSCI.
While Taiwan’s ascent has been aided by international interest in artificial intelligence chipmakers, India has profited from the infrastructure boom brought about by Prime Minister Narendra Modi’s modernization programs. Taiwan Semiconductor Manufacturing Co., the biggest contract chip manufacturer in the world, is based there.
As per Abhilash Pagaria, head of alternative and quantitative analysis at Nuvama Wealth Management Ltd., MSCI is likely to add six stocks, including property developer Oberoi Realty Ltd. and supplier Dixon Technologies (India) Ltd. to its core India index in its review. He also noted that a gradual increase in the weighting of HDFC Bank Ltd., the largest bank in India by market value, might take place.
In the wake of Modi’s third consecutive term in government, India’s NSE Nifty 50 Index has increased 12% this year, while Chinese stocks have underperformed. The benchmark gauge is predicated on annual growth for the ninth consecutive year.
Investor preference for India is highlighted by the divergent trajectories, notwithstanding the continued low cost of China’s equities. It further emphasizes Beijing’s incapacity to halt the downward trend in its markets.
“We do look at India as a bit of a diversifier against some of China’s weakness,” said Seema Shah, chief global strategist at Principal Asset Management. “A lot of the potential that people have been speaking about for years and years is now looking to be fulfilled.”
