Ranking second after China, India has surpassed Taiwan in weightage in MSCI Emerging Markets index. India's index weightage took a leap from 7 per cent to 17.1 per cent in eight years.
A recent Nuvama report suggests that India could cross a 20 per cent weight in the index by early 2024, given the ongoing domestic institutional investments and potential steady FII participation. Moreover, as per the recent Jefferies notes, India is set to attract more foreign investments in 2024 in the medium term.
Although India's position in emerging markets portfolios remains relatively light, its growing size is making its markets more relevant for global funds. An expectation of political stability, rising investment cycle and peaking US dollar are creating a scenario which is in India’s favour, enabling higher foreign flows.
FPI flows have reversed following a notable $33 billion outflow from 2H21–1H22, with the largest inflows seen in the previous 11 years. These increased flows have been facilitated by India's increasing weight in EMs. During the last six quarters, its neutral weight in the benchmark MSCI EM has climbed by 3.5 percentage points. Analysis, however, reveals that rather from being noticeably above average, India's relative position in large EM active funds is now closer to neutral. Consequently, Jefferies notes add that the possibility of FPIs taking a bigger position may turn into a key factor influencing future flows.
The near doubling of India's MSCI EM pack share, from a steady 8 per cent until October 2020, was propelled by factors like India's introduction of a standardised Foreign Ownership Limit in 2020, robust performance in Indian equities and weaker performance in other emerging market packs such as China.
India's stock count in the MSCI Standard index increased to 131 by 2023, with a net addition of 17 Indian stocks across four reviews. This showed an improvement from 2022 inclusion of only nine Indian stocks. This rise in 2023 was because of India's substantial market rally compared to other emerging markets and MSCI's transition from semi-annual to quarterly rebalancing.