market: D-Street surge raises India’s heft on MSCI gauge

With the addition of nine stocks on Friday, India’s representation on the MSCI’s Global Standard (Emerging Markets) index climbed to 16.27%, surpassing the earlier record set in October 2022 at 16.21%. Last month, India reclaimed the second position after displacing Taiwan. Currently, China has the highest weighting on the gauge – at 28%.

India’s weighting held steady at around 8% from 2015 until October 2020. However, since November 2020, the weighting in the most keenly tracked EM index has doubled. During the same period, China’s weighting declined from 43.2% to 28% currently.

Several compelling factors have contributed to India’s sharp rise in the MSCI EM index, said analysts.

“This remarkable achievement can be attributed to multiple factors, such as India’s standardised foreign ownership limit (FOL) in 2020, robust performance by Indian equities and relative underperformance by other EM packs, especially China,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.

In 2023, Indian markets have exhibited a robust outperformance compared. MSCI India has recorded an impressive surge of 12.3% year-to-date, surpassing the modest 2.7% gain observed in MSCI Emerging Markets (EM). This has resulted in the incorporation of numerous Indian stocks into the MSCI EM index. Also, MSCI recently transitioned from a semi-annual to a quarterly rebalancing schedule for stock inclusions and exclusions.

This year, the number of Indian stocks included in the MSCI Standard index has increased to 131, reflecting the addition of 17 stocks over the past four reviews, compared with 9 stocks added in 2022. After selling equities worth ₹1.26 lakh crore in 2022, foreign portfolio investors (FPIs) have invested ₹1.18 lakh crore in Indian shares so far this year. FPIs put in more than ₹1 lakh crore and ₹1.73 lakh crore in 2019 and 2020, respectively.”With a consistent flow from domestic institutions and revived FPI participation, there is potential for India to surpass a 20% weighting in the MSCI EM Index by early 2024,” said Pagaria of Nuvama.

In 2023, India secured the highest FPI inflow, amounting to $14.4 billion. This surpasses the FPI inflows of $7 billion for South Korea and $6.8 billion for China during the same period.

In 2019, the Indian government decided to raise the statutory FPI limit for Indian companies to match the sectoral foreign investment limit. This change came into effect on April 1, 2020. However, companies were provided with the option to restrict FPI limits to a lower threshold with board approval.