India has overtaken China in the MSCI Emerging Market Index. This is expected to bring a lot of foreign investment to India. Since 2020, the difference in the weightage of the two countries in the benchmark index has been continuously decreasing, so India was waiting for this moment for a long time.
China’s weightage decreased rapidly after 2021
Morgan Stanley said in a note on September 17 that according to MSCI IMI (investible large, mid and small cap), India is now the largest EM market. While China’s weightage has fallen sharply after reaching a high in 2021.
The brokerage said that India is now the sixth largest emerging market in the world. It is only slightly behind France. India’s weightage is 2.35, while France’s weightage is 2.38.
Morgan Stanley said that India’s stock will continue to rise due to its strong outperformance, new issues and improving liquidity. It remains ‘overweight’ on India and ‘underweight’ on China in the pan-Asia EM asset allocation. India’s nominal GDP growth rate is currently more than three times that of China.
India has overtaken China at a crucial time when the US Federal Reserve is expected to cut rates. The US central bank’s rate cut will increase inflows into emerging markets. India is expected to benefit the most from this.
China’s influence in emerging markets has decreased after 2020. At that time it had a 40% share in the MSCI EM index. Whereas India’s presence has increased rapidly. In May, India’s weightage in the EM index increased from 18.8% to a record 19.4%. While China’s weightage decreased from 25.4% to 24.2%.
Foreign investors are also affected
Earlier this month, India overtook China to become the country with the largest weight in the MSCI EM Investable Market Index. The MSCI index – Morgan Stanley Capital International Index is a benchmark for international investors, which shows the performance of companies. Foreign institutional investors are influenced by this index.
Sentiment can be influenced by the valuations at which domestic stocks are trading. India remains a more expensive market compared to its peers. The broader market in India is more expensive than the benchmark index. The value of Nifty’s price-to-earnings ratio is 24.4. While the value of small cap and mid cap index is 34.5.6 and 46.8.
