Eco Survey highlights India's growing weightage in global indices

Effective April 1, 2020, Centre had relaxed FPI limit for Indian firms to the applicable FDI sectoral limit. Move led to spike in India's foreign ownership limits (FOL) in global indices

The increase in foreign portfolio investor (FPI) limit to the sectoral cap has acted as a catalyst for increasing weightage of domestic securities in major global equity indices, said the Economic Survey 2021-22.

With effect from April 1, 2020, the centre had relaxed the FPI limit for Indian companies to the applicable foreign direct investment (FDI) sectoral limit. The move had led to an increase in India’s so-called foreign ownership limits (FOL) in global indices.

The survey highlights the increase in India’s weightage in MSCI EM index from 8.3 per cent in 2020 to 12.45 per cent in December 2021. The country’s weightage also rose in other indices such as the MSCI Asia Pacific Ex-Japan, MSCI World index and those compiled by the FTSE.

“Many global institutional investors use MSCI’s EM Index and several such indices covering other markets and themes as part of their passive investment strategy allocating capital in line with the benchmark indices. India’s weight in theMSCI EM index plays an important role in attracting FPI investments in its equity market,” the survey said.

The survey said rising foreign interest in India’s capital market reflects in the strong FPI flows of Rs 2.74 trillion seen during 2020-21.

The survey also underscored the growing retail participation in the domestic market. “The substantial increase in share of individual investors in 2020-21 and 2021-22 can partly be ascribed to the increase in new investor registrations witnessed since February 2020. In April-November 2021, nearly 22.1 million individual demat accounts were added.”