India’s recent ascendancy in major global indices is poised to attract significant foreign investments, potentially giving its equities a substantial boost. According to a Morgan Stanley report dated September 17, India has surpassed China in the MSCI AC World IMI Index, holding a 2.35% weighting compared to China’s 2.24%. This shift positions India as the sixth largest market globally, just behind France.
India Surpasses China in MSCI Emerging Markets Index
Earlier this month, India also overtook China to become the largest market in the MSCI Emerging Markets Investable Market Index. This milestone highlights a growing investor confidence in India as a potential new engine of global economic growth, particularly as China faces challenges such as insufficient stimulus and ongoing deflationary pressures.
Impact on Foreign Investments
The change in index weightings is expected to lead to a surge in foreign flows into Indian equities. Foreign investments, which have fluctuated throughout the year, are projected to see their largest quarterly purchases since June 2023. Marvin Chen, a strategist at Bloomberg Intelligence, noted that India’s rise in MSCI indices reflects an ongoing investor shift towards emerging market growth engines.
India’s Market Performance
India’s stock market, valued at $5 trillion, has reached multiple record highs this year, with renewed interest from global investors following the resolution of political uncertainties from recent elections. In contrast, China’s market presence in global benchmarks has diminished, with the CSI 300 Index near a five-year low.
Challenges and Future Outlook
Despite its recent advancements, India has not yet displaced China in the more widely-followed MSCI World Index and MSCI Emerging Markets Index. These indices, which track large and midcap stocks, remain more popular among global investors than the broader IMI indices. Morgan Stanley strategists, including Jonathan Garner, anticipate that India will continue to gain market share due to strong performance, new market issuances, and improved liquidity. They maintain an overweight position on India and an underweight stance on China in their pan-Asia emerging markets asset allocation.
Conclusion
India’s growing prominence in key global indices and its potential to attract increased foreign investments underscore a significant shift in the global economic landscape. As investors adjust their strategies in response to China’s challenges, India’s stock market stands poised for continued growth and enhanced international appeal.
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