India Surpasses China in MSCI On Strong Fundamentals

Ira Singh
Khabar Khabaron Ki,08 Sep’24

India has overtaken China in the MSCI Emerging Markets Investable Market Index, securing a weightage of 22.27 percent, compared to China’s 21.58 percent. This shift marks a significant milestone for India’s position in global markets, with analysts predicting an inflow of approximately $4.5 billion into Indian equities. The adjustment highlights growing investor confidence in India’s robust macroeconomic fundamentals and strong corporate performance, underscoring its rising prominence in global portfolios.

The shift comes as India’s economy demonstrates resilience, bolstered by favorable market conditions.The change in the MSCI index is driven by India’s consistent economic growth, particularly in sectors like services, which have demonstrated remarkable resilience. According to an official survey , by S&P Global,released on Wednesday, India’s services sector activity accelerated to a five-month high in August. The expansion was fueled by stronger business activity, rising new orders, and positive demand trends. However, the survey also revealed that employment growth in the sector slowed, hitting a four-month low.

Despite the challenges in hiring, the services sector continues to be a critical driver of India’s economic performance, reflecting the country’s ability to weather global uncertainties. The momentum in India’s services industry, combined with the shift in the MSCI index, is expected to attract more foreign investors looking for long-term growth prospects in emerging markets.

Behind the India-China Shift
The rebalancing of the MSCI index points to broader market trends. While Chinese markets continue to face economic challenges, India’s economy has thrived, benefiting from declining Brent crude prices, a surge in foreign direct investment (FDI)—up 47% in early 2024—and strong foreign portfolio investment (FPI) in Indian debt markets. These factors have contributed to a broad-based rally in India’s equity markets, with large, mid, and small-cap stocks all performing strongly.

According to information, from March to August 2024, India’s weight in the MSCI Emerging Markets Index rose from 18% to 20%, while China’s share dropped from 25.1% to 24.5%. This shift reflects the growing importance of Indian markets and highlights India’s increasing relevance to global investors.

Expected Impact for India
Analysts see the rise in India’s weight in the MSCI indices as a positive signal for the country’s equity markets. The expected inflow of $4 to $4.5 billion into Indian equities is anticipated to fuel continued growth, providing critical capital for India’s economic expansion. The increase in global investment underscores the need for both domestic and foreign capital to sustain India’s upward trajectory.

Market Outlook and Key Data to Watch
Despite this positive momentum, Indian benchmark indices witnessed a sharp fall on Friday after consolidating at all-time highs throughout the week. The dip was triggered by concerns over a potential global economic slowdown, exacerbated by weak U.S. job data. U.S. markets also ended lower after a temporary boost from economic reports, with investor sentiment heavily leaning towards expectations of a rate cut by the U.S. Federal Reserve.

In the upcoming week, market participants will closely monitor several key macroeconomic indicators, including India’s Consumer Price Index (CPI) inflation and Industrial Production (IIP) data. Global factors like U.S. inflation figures and non-farm payroll data will also influence investor sentiment as markets remain on edge over the global economic outlook.

India’s growing prominence in the MSCI Emerging Markets Index signals a bright future for its equity markets, yet challenges tied to global economic uncertainties remain pivotal to watch in the coming days.