China has reclaimed the top spot in the MSCI Emerging Markets Investable Market Index (EM IMI), surpassing India in September and holding the lead through October. This marks a reversal following India’s brief reign as the largest market by weight in August.
China’s weight in the MSCI EM IMI rose to 24.72 percent in October from 21.58 percent in August, driven by a sharp rally in Chinese equities, while India’s weight declined to 20.42 percent from 22.27 percent.
China’s ascent back to the top spot comes amid the government introducing a series of stimulus measures to revitalise its economy. Since its September lows, the Shanghai Composite Index has rallied over 25 percent, fuelled by investor optimism around Beijing’s commitment to economic support.
On the other hand, India's equity market has faced pressures, with benchmark NSE Nifty 50 and S&P BSE Sensex indices down 8 percent September peaks. Record foreign outflows and earnings disappointments have also dampened India’s market weight. The divergence is also visible in both the countries’ total market capitalisation. India’s market cap stands at $4.53 trillion at present, while China’s market cap is at $10.81 trillion.
Also read | India's equity markets have more upside than consensus believes, says Morgan Stanley
The MSCI Emerging Markets Investable Market Index includes large, mid and small cap companies and targets coverage of approximately 99 percent of the free float-adjusted market capitalization in each country. This is different from the MSCI Emerging Markets Index, which targets coverage of approximately 85 percent of the market capitalisation across large and mid cap stocks.
The long-term outlook for India’s markets remains robust, according to Morgan Stanley -- the investment banking and financial services firm.
In a recent note, Morgan Stanley cut Asia markets growth forecast, still maintaining a bullish outlook. The brokerage now forecasts Asia’s total market cap to reach $40.9 trillion by 2027, cutting it from its previous estimate of $55.5 trillion.
However, the firm sees India as a standout in the region, with its market capitalisation expected to rise to approximately $6.2 trillion by 2027, nearly triple its 2017 level. By contrast, Morgan Stanley anticipates growth in China and Hong Kong to be slower than initially projected, with an expected combined market cap of $18.5 trillion by the end of 2027.
Morgan Stanley cited India's macroeconomic stability, which has resulted in lower inflation volatility. It said that a predictable growth trajectory and a private capex cycle will likely support India's economic strength. Additionally, rising discretionary consumption is expected to aid earnings growth. Morgan Stanley predicts an 18-20 percent compound annual growth rate (CAGR) in corporate earnings for the next 4-5 years.
Private equity, venture capital, and sovereign funds have already shown sustained interest in India, benefiting from profitable exits over the past few years. Morgan Stanley expects these investors to increase their involvement, capitalising on India's growth opportunities. The brokerage also said that India’s market has consistently ranked among the top performers globally, delivering substantial returns in both Rs and USD terms over time.
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