India has officially eclipsed China in crucial global stock gauges, signaling a significant shift in investment dynamics and the potential for a substantial influx of foreign capital into Indian equities. According to a report by Morgan Stanley dated September 17, India now holds a 2.35% weighting in the MSCI AC World IMI Index, compared to China’s 2.24%. This positions India as the sixth-largest market globally, just behind France.
Earlier this month, India also overtook China to become the largest market in the MSCI Emerging Markets Investable Market Index. This trend highlights a growing confidence among investors that India may serve as the new engine of global economic growth, particularly as China grapples with sluggish stimulus measures and ongoing deflationary pressures.
Marvin Chen, a strategist at Bloomberg Intelligence, noted that “India’s overtaking of China in some MSCI indices represents an ongoing rotation as investors shift to new emerging market growth engines.” This shift is further evidenced by an anticipated surge in foreign investments, with institutional holdings in Indian stocks expected to reach their highest levels since June 2023.
India’s $5 trillion stock market has experienced a series of record highs this year, buoyed by a resurgence of global investors following the resolution of political uncertainties related to upcoming elections. In contrast, China’s share in global benchmarks has diminished over the years, with the CSI 300 Index hovering near a five-year low.
However, it’s important to note that India has yet to surpass China in the more widely tracked MSCI World Index and MSCI Emerging Markets Index, which primarily focus on larger and mid-cap stocks. The IMI gauges encompass a broader range of companies, including smaller firms, which may not attract as much attention from global investors.
Morgan Stanley strategists, including Jonathan Garner, remain optimistic, asserting, “We think India will continue to gain share due to market outperformance, new issuance, and liquidity improvements.” They maintain an overweight position on India while being underweight on China in their pan-Asia emerging market asset allocation.
As India continues to attract foreign investment and build momentum, the implications for its economy and stock market appear increasingly positive, positioning it as a key player in the global financial landscape.
