India becomes 6th largest market in MSCI ACWI, tops emerging markets list

China's weight has fallen by half since peaking in early 2021, while India's has more than doubled during this period

India has become the sixth largest market in the MSCI All Country World Investable Market Index (ACWI IMI), surpassing China and narrowly behind France.

For the first time, India is the largest emerging market (EM) in the gauge that tracks the performance of global capital markets.

At the end of August, India’s weight in the MSCI ACWI IMI stood at 2.35 per cent, 11 basis points (bps) more than China which is at 2.24 per cent. France has just 3 bps more weight than India.

MSCI ACWI IMI index encompasses stocks in the large- and mid-cap space. It is a spinoff of the more widely followed MSCI ACWI Index, which has only large and mid-cap representation.

India still lags behind China in this index with a weight of 2.07 per cent compared to 2.41 per cent for the neighbouring nation as of September 16.

According to analysts, India's top weight in the MSCI ACWI IMI may not significantly impact passive inflows, as the index is tracked by exchange-traded funds (ETFs) with relatively modest assets of less than $2 billion.

However, getting the top EM and sixth-largest weight tag in the index is expected to provide a substantial image boost, enhancing the country's investment attractiveness.

In a note, Jonathan Garner, chief equity strategist for Asia and EM, Morgan Stanley, said, “India will continue to gain share due to market outperformance, new issuance and liquidity improvements.”

China's weight has fallen by a half since peaking in early 2021, while India’s has more than doubled during this period.

“India's nominal GDP growth rate is running in the low teens currently which is more than 3x that of China. This is generating a profound divergent operating and earnings growth environment for companies between the two geographies,” he added.

In August, India also pipped China to become the top weight in the MSCI EM IMI for the first time.

The combined weight of domestic stocks, part of the MSCI EM IMI index, is 22.27 per cent, while that of India’s larger neighbour is almost 70 bps lower at 21.58 per cent.

MSCI EM IMI is tracked by passive funds with assets under management of about $125 billion. The main MSCI EM index, however, is tracked by funds with assets of $500 billion.

In the pan-Asian and EM portfolios, Morgan Stanley has the largest overweight on India and Japan at 150 bps each. At the same time, the brokerage is 150 bps underweight on China.