India overtakes China in MSCI Emerging Markets Index, signaling economic strength

India beats China on the MSCI Emerging Markets Index

India’s remarkable economic fundamentals have propelled it ahead of China in the MSCI Emerging Markets Investable Market Index (IMI), making it the largest weight in the index. The world’s fastest-growing economy is also poised to surpass China as the top weight in the broader MSCI Emerging Markets index.

The MSCI Emerging Markets IMI encompasses large, mid, and small-cap stocks across 24 emerging market countries, including 3,355 constituents. This index represents approximately 99% of the free float-adjusted market capitalization in each country.

Global brokerage Morgan Stanley highlighted that India’s rising index weight reflects strong fundamental factors, including improved free float and rising earnings among Indian companies. The brokerage praised India’s newfound prominence in the emerging markets sector, noting that India remains its top pick in the EM region and its second choice in the Asia-Pacific region.

According to Morgan Stanley, while there are potential triggers for market corrections, they are not substantial enough to halt the bullish trend in Indian equities. The positive momentum suggests that India’s weight in the EM index could continue to grow.

Market analysts are optimistic about India’s economic performance, supported by a 47% increase in foreign direct investment (FDI) during the April-June period of FY25. Additionally, Brent crude prices have steadily declined to below $73, further bolstering economic stability.

India has also seen significant foreign portfolio investment (FPI) inflows, with over Rs 1 lakh crore entering the Indian debt market in 2024. This surge is attributed to India’s inclusion in JP Morgan’s Emerging Market (EM) Government Bond Indices earlier this year. The high growth rate, stable government, reduced inflation, and strong financial discipline have contributed to this sharp increase in foreign inflows.

In summary, India’s strong economic fundamentals and positive macroeconomic indicators continue to attract global investors, reinforcing its growing prominence in the global financial landscape.

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