MSCI EM index: India regains the second spot on MSCI EM index

Mumbai: Taiwan’s lead over India as the second most-weighted emerging market was rather short-lived after Mumbai indices, rattled momentarily by the $150-billion wealth erosion in Adani Group shares late January, leveraged the country’s economic breadth and depth to overhaul the semiconductor-heavy East Asian bourse.

India now has a weighting of 15.5% on the MSCI Emerging Market Index (EM), compared with 15.11% for Taiwan. India’s weighting has climbed from 12.97% end-January, when Taiwan’s weighting was 14.42%.

“This accomplishment can be ascribed to India’s superior performance compared with other emerging markets, along with the inclusion of seven new stocks following the August review,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research. “For the upcoming monthly review, we anticipate nine new additions, which should further bolster India’s position.”

To be sure, mainland China has the highest weighting on the globally tracked gauge – around 30%.

India overtook Taiwan for the first time in September last year. However, the selloff in Adani Group stocks, triggered by US short-seller Hindenburg’s report of alleged ‘price manipulation’ and other malpractices, led to a decline in weightings. The Adani Group has repeatedly refuted the allegations.

After stagnating around 8% until October 2020, India’s weight almost doubled to 16% in November 2022.

Since March 2023, India has undergone an impressive rally, resulting in a notable boost to its representation in the MSCI EM Index. MSCI India has surged 14% since March 1, in stark contrast to the 4% decline in the MSCI EM index and a 3% drop in the MSCI Asia Index. Over the same period, the MSCI World Index has recorded a 3% increase.However, the likelihood of a further substantial increase in India’s weighting within the MSCI index appears to face further delay, with global index services provider MSCI unlikely to consider elevating South Korea from the emerging market classification to the developed market (DM) list after Seoul imposed a ban on short selling of shares. The curbs remain in force until June 2024.

Earlier, there was an anticipation that MSCI might elevate South Korea from the EM to the DM category next year, potentially resulting in a surge of passive inflows into other EM nations, including India.

If South Korea were to transition from the emerging market to the developed market category, India’s weight could potentially rise to about 18.5%. This could result in an influx of close to $2-2.5 billion from passive funds.

Several compelling factors have contributed to India’s sharp rise in the MSCI EM index. The implementation of India’s new regime of foreign ownership limit in 2020, coupled with its remarkable growth and outperformance compared to its peers, has attracted active and passive FPI flows, playing a crucial role in this transformation.

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