India has overtaken China in terms of weighting within one of the world’s largest stock market benchmarks, driven by increased share sales and heightened liquidity in Indian companies. As of this month, India’s share in the free-float, investable version of the MSCI All-Country World Index rose to 2.33%, surpassing China’s 2.06%.
This development positions India as the sixth-largest weighting in an index primarily dominated by US companies. It reflects growing demand in India’s dynamic stock market, which is attracting global investors even as the Chinese economy faces challenges and fund managers retreat from China-related stocks.
“It is a natural evolution of the market,” said Vivian Lin Thurston, portfolio manager at William Blair Investment Management. “Indian equities are performing strongly while Chinese ones are lagging. There is a rebalancing occurring as MSCI adds and drops names, leading to greater weight for more liquid Indian stocks.”
The Nifty 50 index, India’s blue-chip benchmark, has reached record highs this year, supported by robust GDP growth and a surge in savings from millions of middle-class households investing in local mutual funds. Notably, approximately $38 billion has flowed into Indian equities this year, surpassing annual inflows of the past 16 years.
Indian companies are capitalizing on the bullish market, with significant initial public offerings (IPOs) from firms like Ola Electric and Bajaj Housing Finance. In total, Indian equity markets have raised over $38 billion in 2024, the highest in Asia and more than double last year’s figures, according to Dealogic data.
Earlier this month, India also surpassed China in the MSCI Emerging Markets investable index, accounting for 22% compared to China’s 19%. While China remains ahead in the broader MSCI Emerging Markets index—largely due to its larger representation of large-cap companies—its share has decreased from 40% in 2020 to about 25%. Conversely, India’s share has increased significantly, from below 7% a decade ago to approximately 20% today.
Despite these advancements, both China and India remain overshadowed by the ongoing bull market in US stocks, which constitute about two-thirds of the world index. As of early 2024, approximately $4.6 trillion in assets were benchmarked to MSCI’s All-Country World Investable Market Index.
“This is very meaningful,” commented Martin Frandsen, global equity portfolio manager at Principal Asset Management. “In India, we have recognized significant improvements in value creation and innovation, creating numerous investment opportunities.”
Goldman Sachs analysts predict an 8% increase for the Nifty 50, projecting it will reach 27,500 by September 2025, driven by mid-teen corporate earnings growth.
However, some analysts express caution regarding high valuations in the Indian market. Goldman strategists note that the 12-month forward price-to-earnings ratio for the MSCI India index has reached a record high of 24.7, marking it the most expensive it has ever been.
Thurston warned that the current positions of China and India could reverse if the “depressed” valuations of Chinese companies recover.
Despite concerns about lofty equity valuations, Rajat Agarwal, Asia equity strategist at Société Générale, believes that inflows into India will likely continue, particularly with a more favorable outlook for emerging markets and expectations of US Federal Reserve interest rate cuts.
“There is widespread acknowledgment that valuations in India are high,” Agarwal noted. “Yet domestic investment is still flowing in, and this trend is unlikely to reverse unless there is an external shock.”
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