India gains further ground in MSCI Indices

India’s weight in MSCI Emerging Markets Index (“the Index”) will hit a further high, reaching 18.2% in its February review. MSCI will add five stocks and will not delete any from the index. The changes will come into effect from market close on 29 February 2024.

Post the rebalance, the stock count in the Index will rise to 136. MSCI had rejigged the Index in November 2023 by adding nine stocks. At the start of 2023, India’s weight stood at 14% with stock count at 113. At the end of January 2024, India’s weight in the Index is 17.98% while that of China is 24.87% and Taiwan is 16.61%. India's representation in the Index will reach an all-time high, marking a significant increase over the past four years, almost doubling its weight. These changes are likely to bring in passive flows of ~US$1-1.5 bn. MSCI indices are widely tracked by passive funds and any inclusion of stocks or increase in weightage of stocks in these global indices potentially lead to inflows.

As per the latest rejig, Bharat Heavy Electricals, GMR Airports Infrastructure, NMDC, Punjab National Bank and Union Bank of India will be added to the Index. In contrast, MSCI deleted 66 Chinese stocks while adding five.

Source: MSCI. Date: 13 February 2024. * Data as on 13 February 2024. The above graph is used to explain the concept and is for illustration purpose only and should not be used for development or implementation of an investment strategy.

India’s growing presence in the Index is representative of India’s economic growth, the sustained rally in equities and underperformance by China. In the last decade while India’s share grew from 6.4% in 2013 to 18.2%8 in 2024, a gain of 1180 basis points; China’s weight during the same period fell from 42.5% to 24.87% that is 1763 basis points.

Commenting on India’s increasing weight, Ashish Gupta, CIO, Axis Mutual Fund said, “in the last decade, India has rewritten its growth story and increasing weights in MSCI Indices are suggestive of its growing prominence. This is underpinned by our resilient macroeconomic conditions and robust inflows from FPIs and DIIs. Given the current trajectory of earning growth rates, particularly in relative terms, it would be no surprise that we could be crossing the 20% mark in the Index."

Foreign Portfolio Investors (FPIs) consistently displayed a preference for Indian equities and 2023 witnessed substantial net inflows of approx. US$20.7 billion. Within the emerging market basket, India was the highest beneficiary of these inflows.

In 2023, the S&P BSE Sensex & NIFTY 50 advanced 18.7% and 20% respectively while the NIFTY Midcap 100 & NIFTY Small cap 100 gained 46.6% and 55.6% respectively. 2023 was the eighth consecutive year of positive returns in equities. In December 2023, India’s market capitalization crossed the US$4 trillion mark, making it the fifth country to achieve this milestone. In its January 2024 update, the International Monetary Fund (IMF) upgraded India’s growth outlook on the back of better-than-expected resilience in its domestic demand. IMF now expects India’s GDP to grow by 6.5% in FY24 and FY25.

Disclaimer

Source of Data: Axis MF Research, Bloomberg, MSCI. Date: 13 February 2024

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