India Pips China To Take Leadership In MSCI EM Index As Stock Market Boom Continues

India has taken the leadership position in MSCI's gauge for emerging markets by topping China which could attract foreign inflows into the country amid peak valuations. This was long anticipated, given the narrowing gap between the two countries' weights in the benchmark index since 2020. India is now the largest EM market per MSCI IMI (investible large, mid and small cap) criteria whilst China's weight has fallen by a half since peaking in early 2021, Morgan Stanley said in a note on Sept.

17. India is now the sixth largest market globally, narrowly behind France, the brokerage said. India will continue to gain share due to market outperformance, new issues and liquidity improvements, Morgan Stanley said.



It remains 'overweight' on India and 'underweight' on China in its pan-Asia EM asset allocation. India's nominal GDP growth rate is running in the low teens currently which is more than three times that of China, equity strategists at Morgan Stanley said. "This is generating a profound divergent operating and earnings growth environment for companies between the two geographies.

" China's influence in emerging markets has declined since 2020, when it accounted for 40% of the MSCI EM Index, while India's presence has grown steadily. India's weightage in the EM gauge jumped to a record of 19.4% from 18.

8% in May, while that of erstwhile table topper China slipped to 24.2% from 25.4%, as per the index aggregator's quarterly review for August.

Earlier this month, India overtook the South Asian dragon country to become the largest weighting in the MSCI EM investable market index. The MSCI Index—Morgan Stanley Capital International Index—is a benchmark for international investors, reflecting the performance of companies. Foreign institutional investors are significantly influenced by this gauge when making decisions to allocate capital to domestic stocks.

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