India’s MSCI Global Index weightage at historic high with new peaks possible in 2024

• India, at 18.2% now, has the second highest weightage in MSCI Index, after China.
• Nuvama expects this recent rejig by MSCI to bring in $1.2 billion in passive inflows from FIIs.
• India’s corporate earnings growth, macroeconomic outlook and equity market performance are reasons for the upgrade, say experts.
• Chinese markets’ relative underperformance and falling holdings of top emerging market (EM) funds in the market play to India’s advantage.
  

India’s weightage in the MSCI Global Standard Index has been recalibrated to 18.2% by the index in its latest rejig. Not only is it at a historic high, it’s the second-highest weightage in the index after China, which is at 23%. Moreover, market watchers believe that it can go higher in the current calendar year itself.

“With a consistent flow from domestic institutional investors (DIIs) and now if steady foreign institutional investors (FIIs) participation resumes, there is potential for India to surpass a 20% weightage in the MSCI EM Index by early 2024 itself,” said a report by Nuvama.

Sanjeev Hota, vice president of research at Sharekhan also believes that India has room to go further in MSCI. “With China markets not performing, India is a good opportunity for FIIs, in terms of its corporate earnings growth and political stability,” he told Business Insider India.

India's representation in the MSCI EM pack had been at around 8% from 2015 until October 2020. Since November 2020, its representation has nearly doubled. If one were to count it from 2012, when it was at around 6.6%, it has almost tripled, experts say.

“This remarkable achievement can be attributed to multiple factors. India's standardized Foreign Ownership Limit (FOL) in 2020. Robust performance by Indian equities, particularly in the midcap segment, leading to numerous inclusions in every review,” said a report by Nuvama.

The research firm expects as much as $1.2 billion of foreign institutional investor (FII) passive inflow into the markets, both in standard and smallcap index. Apart from funds, it will also bring further stability into Indian equities.

“Increased MSCI weightage will lead to increased institutional holdings which are considered to be generally long term in nature. It will provide stability in prices over the long term,” says Apurva Sheth, head of market perspectives & research at SAMCO Securities.

India versus China

Experts also attribute India’s ascension in index weightage to the relative underperformance of Chinese markets. The lowest daily average turnover on the stock market since 2019 was 790 billion yuan in 2023 as per Alchemy Capital Management.

Over the past year, MSCI China declined by 25%, while MSCI India has increased by 31%. The recent liquidation of real estate major Evergrande will add more troubles to the banking sector as well.

Sheth says that underperformance by Chinese markets is a boon for Indian markets as it gives an opportunity for increasing India’s weightage on global indices.

“Top EM funds' average holdings of Chinese stocks have fallen to a five-year low, and very few have increased their positions. With the outlook continuing to be strong for India, we expect it to attract more money on its own merits, but China’s failures would only add fuel to the fire,” said Alok Agarwal, head quant & portfolio manager, Alchemy Capital Management.

If significant EM funds continue to pull out, China’s equity risk could prolong stagnation. India, on other hand, with its robust macroeconomic outlook, and the performance of equity markets could become a preferred opportunity, experts say.

“India’s story has just started. It’s going to grow further,” says Hota.