India has displaced China as the world's largest MSCI EM market. As of the end of August, India is now in the pole position across EM markets, as per MSCI IMI.
Since peaking in early 2021, China's weight in the index has slipped by half a percentage point, giving India the room to be the sixth largest market globally, just behind France.
According to international brokerage Morgan Stanley, India will continue to gain market-share as a result of its market outperformance, new issuances and liquidity improvements. The brokerage decided to remain 'overweight' on India, while reiterating its 'underweight' call on China in the pan-Asia EM asset allocation play.
India's nominal GDP growth rate is running in the low teens currently, which is three times that of China. As a result, there is a profound divergent operating and earnings growth between the companies in the two countries.
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India overtook China in the MSCI EM Investable Market Index (IMI) on September 4 to become the largest weight, and is now nearing the threshold to surpass China as the top weight in the broader MSCI Emerging Markets index as well.
The MSCI Emerging Markets Investable Market Index (IMI) includes large, mid and small-cap counters from 24 Emerging Markets economies.
International brokerage Morgan Stanley in a note has explored if this is good or bad news for Indian equities. Currently, foreign investors are being outbid for the same equity by domestic market participants. Hence, the growing issuance pipeline is important to increase foreign participants, the note observed.
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