On Wednesday, September 4, Morgan Stanley released its latest report stating that India’s weight in the MSCI Emerging Markets Investable Market Index (IMI), formerly known as Morgan Stanley Capital International, is soon expected to surpass China, becoming the largest country in the index.
India’s growing population, youthful demographic, and efforts over the past decade in digital, regulatory, financial, and physical infrastructure development are positioning India to potentially overtake China as the most influential country in key emerging markets.
The MSCI IMI Index covers stocks from 24 emerging market economies, including large, mid, and small-cap companies, reflecting the overall performance of these markets.
Following adjustments in August, India’s weight in the MSCI Emerging Markets Index rose to 19.8%, nearing China’s 24.2%. India’s weight has steadily increased from 9.2% in December 2020, while China’s weight sharply declined from 39.1%.
Ridham Desai, Managing Director of Morgan Stanley’s India Research Department and Chief India Equity Strategist, mentioned in the report on Wednesday that the rise in weight essentially implies more inflow of external funds.
Desai added, “Considering India’s relatively low weight in an average emerging market portfolio, this is more favorable for foreign investment portfolio inflows.”
According to a report by Reuters on Thursday, as of 2024, foreign portfolio investments (FPI) have bought stocks worth 531.78 billion Indian Rupees (approximately 6.33 billion USD) and have remained net buyers since June, benefiting from the continuity of policies post India’s general elections and upcoming global interest rate cuts.
The report states that ongoing inflows from domestic institutional investors, mutual funds, and retail traders have driven India’s flagship stock index, Nifty 50, to reach record highs. The index has surged by 16% this year, outperforming most markets including China.
Desai anticipates that adjustments in India’s fiscal policies leading to increased private borrowing and spending will drive the next phase of profit growth. Additionally, an increase in foreign institutional investments (FII) inflow will further sustain the uptrend.
As per a report by Indian financial news website MoneyControl, Morgan Stanley’s latest report suggests that the rise in index weight may indicate excessive optimism but could also be due to fundamental factors. They mentioned, “Fundamental factors do apply to India, therefore, India’s new position in emerging markets is not a cause for concern.”
Morgan Stanley has placed India as the top investment choice in emerging markets, ranking as the second choice in the Asia-Pacific region after Japan.