India has pipped China to become the top weight in the MSCI Emerging Market (EM) Investable Market Index (IMI) for the first time. The combined weightage of domestic stocks that are part of the MSCI EM IMI index is 22.27 per cent, while that of India’s larger neighbour is almost 70 basis points lower at 21.58 per cent.
This is despite China’s total market capitalisation at $8.14 trillion being over 60 per cent greater than India’s $5.03 trillion, according to Bloomberg data.
The exact assets tracking the MSCI EM IMI index—an offshoot of the main MSCI EM index tracked by funds with assets of $500 billion—are not known. However, US-based brokerage Morgan Stanley, in a note, said being a top weight will help open the doors for more foreign inflows into Indian companies.
The mainstay MSCI EM index—also referred to as the standard index—encompasses stocks in the large- and mid-cap space. The IMI, on the other hand, is more broad-based, with stocks from large-, mid- and small-cap universes.
The higher weight for India vis-à-vis China is by virtue of having a higher share of small-cap weightage in the EM basket, said Sriram Velayudhan, Senior Vice President, IIFL Securities.
Over the past two years, MSCI, a global index provider, has been trimming Chinese stocks from its indices following an extended period of underperformance. On the contrary, Indian companies forming part of its indices have been on the rise.
Last week, MSCI added seven more domestic stocks to its standard index, while trimming 60 from China. Following this, China’s weightage in the index slipped below 24 per cent, while India’s went past 20 per cent for the first time. China—the world’s largest market and economy—has a 320 bps higher weight than India in the MSCI EM index. This gap has narrowed substantially, as at the start of 2021, India’s weight at 9.2 per cent was less than a fourth of China’s 38.7 per cent in the index.
While including stocks and assigning weights, MSCI considers the available legroom for overseas funds as its indices are tracked mainly by global funds seeking exposure to EM or Asian markets. Liberalisation of investment rules by the government has helped improve the investment legroom for foreign portfolio investors (FPIs).
While India’s weightage in most MSCI indices has risen, currently most EM funds have an underweight on the domestic markets given their expensive relative valuations.
Reliance Industries (weight of 1.22 per cent in the index), Infosys (0.86 per cent) and ICICI Bank (0.85 per cent) are top Indian companies in the MSCI EM IMI index. Meanwhile, Taiwanese semiconductor giant TSMC (8.09 per cent), Chinese technology conglomerate Tencent (3.6 per cent), and South Korean electronics major Samsung (2.96 per cent) are the top three components of the index.
First Published: Sep 05 2024 | 8:34 PM IST
