India Surpasses China in MSCI EM IM Index
In September 2024, Morgan Stanley announced that India had surpassed China in the MSCI Emerging Markets Investable Market Index (MSCI EM IMI) in terms of weighted value. India’s weight in the MSCI EM IMI stood at 22.27 percent, compared to China’s 21.58 percent.
The MSCI IMI includes 3,355 stocks, covering large, mid, and small-cap companies from 24 emerging market countries. It aims to cover approximately 85 percent of market capitalization (free-float adjusted) available to investors in each country.
While the main MSCI EM Index covers large and mid-cap companies, the IMI is broader, including large, mid, and small-cap stocks. India’s higher weight in the MSCI IMI compared to China is primarily due to its stronger small-cap representation.
This rebalancing reflects broader market trends. China’s markets have struggled due to adverse economic conditions, while India’s markets have benefited from favorable macroeconomic conditions. Recently, India has outperformed in the equity market, driven by robust macroeconomic fundamentals and strong corporate performance. Additionally, the gains in Indian equity markets have been broad-based, visible in large, mid, and small-cap indices. Key contributing factors to this positive trend include a 47 percent increase in foreign direct investment (FDI) in early 2024, declining oil prices, and significant foreign portfolio investment (FPI) in Indian debt markets.
As a result, MSCI has increased the relative weight of Indian stocks in its indices. In the MSCI EM Index, India’s weight increased from 18 percent in March 2024 to 20 percent in August 2024, while China’s weight decreased from 25.1 percent to 24.5 percent over the same period.
Analysts estimate that this shift in the MSCI EM IMI could lead to an inflow of around $4 to $4.5 billion into Indian equities. To maintain its momentum in economic growth and development, India will need capital from both domestic and foreign sources, making the increase in India’s weight in global EM indices a significant positive indicator.
