**India Narrows Gap with China in MSCI Emerging Markets Index**
India has made significant progress in MSCI’s Global Standard index, which tracks emerging market stocks. In a recent announcement, the index provider MSCI assigned India a weightage of 18.2% – an all-time high. This move is expected to attract around $1.2 billion in inflows, according to analysts. On the other hand, China’s weight in the index has decreased from last year’s 26.6% to 25.4% in the latest revision.
The convergence between Indian and Chinese stocks has been gaining momentum since August 2020, when China’s weightage was five times higher than India’s. The revisions made by MSCI will come into effect after the market closes on February 29. Prior to the February review, Indian shares held a weightage of 17.9% on the index.
Experts attribute India’s gain to a sustained rally in equities and the underperformance of other emerging markets, particularly China. A research note by Nuvama Alternative & Quantitative Research highlighted these factors. The firm further predicted that India’s weight on the MSCI index could exceed 20% by early 2024, bolstered by consistent flows from domestic institutional investors and steady participation from foreign portfolio investors.
In its latest revision, MSCI added five Indian stocks to the Global Standard index and removed none. In contrast, the index provider removed 66 Chinese stocks while adding five. Among the Indian companies included in the index, Punjab National Bank and Union Bank of India joined the large-cap category, while Bharat Heavy Electricals and NMDC were included in the mid-cap category. GMR Airports Infrastructure was moved from small-caps to the mid-cap category.
Following the February review, it is anticipated that India will experience passive foreign flows of up to $1.2 billion, according to Nuvama. Additionally, 27 small-cap stocks were added to the MSCI Domestic index, while six were either reassigned or removed. Tata Motors and Macrotech Developers have been included in the domestic index under the large-cap category. Punjab National Bank, Canara Bank, and Embassy Office Park REIT have been included in the mid-cap category. Bharat Heavy Electricals, Persistent Systems, MRF, Suzlon Energy, and Cummins India were transferred from small-caps to the mid-cap index.
Analyst comment
Positive news: India narrows gap with China in MSCI Emerging Markets Index, gaining higher weightage and potential inflows. Market to see increased investment in Indian stocks, with India’s weight on the MSCI index predicted to surpass 20% by 2024. China’s weightage declines.
