India is about to close the difference with China in MSCI Inc.’s emerging country index. After this week’s assessment by the index provider, analysts from companies like IIFL Securities Ltd. and Smartkarma anticipate that India’s weight within the MSCI Emerging Markets Index will increase by at least one percentage point. By doing this, the nation would nearly match China, which presently makes up 22.33% of the benchmark. India is 19.99% behind.
India Will Be Better Positioned
India will be better positioned to evolve into the new anchor regarding developing market equities with a bigger proportion, which would probably result in more capital flowing into the nation. The growing weight of India, according to fund managers, might entice foreign investors those who have been hesitant to invest in the EM gauge because of China’s dominance over the index. According to the portfolio manager, Vivek Dhawan, at Candriam Belgian NV, “it may make the EM index a bit more balanced, wherein secular growth stories such as India receive higher allocation” in contrast to more cyclical markets like China and Korea.
This change has an unintended consequence: index followers would be compelled to commit capital to India’s already costly stocks at a point of time when crowded transactions are suffering as a result of the volatility in international markets. India, which has long been hailed as the “next China,” has been a darling among investors thanks to its strong economic development, expanding middle class, and thriving manufacturing industry. China is coping with long-term economic difficulties and deteriorating ties with the West at the same time.
India’s Influence in Emerging Markets
According to Hiren Dasani, lead portfolio manager of Goldman Sachs Asset Management’s India Equity strategies and co-head of Emerging Markets Equity, “many global investors who didn’t look at India as a standalone allocation during the past might look at it more favorably.” India’s influence in emerging economies has been gradually growing over the last few years, whereas China’s has decreased.
China was 40% of the MSCI EM Index at its high in 2020, but due to Beijing’s regulatory crackdowns and measures to deleverage its massive property sector, that proportion has decreased. India’s weight was only 2.34 percentage points behind China’s as of the end of July in the MSCI Asia Pacific Index, a regional benchmark. This pattern was consistent with the majority of gauges from major index providers. An email for comment sent outside of normal business hours was not answered by MSCI.
In the wake of Prime Minister Narendra Modi’s third consecutive term in power, India’s NSE Nifty 50 Index has increased 12% this year, while Chinese stocks have underperformed. A ninth consecutive year of annual growth is the benchmark gauge’s setting. Investor preference for India is highlighted by the divergent trajectories, notwithstanding the continued low cost of China’s equities. It further emphasizes Beijing’s incapacity to halt the downward trend in the market.
