India’s Weightage Surges on MSCI Global Standard Index

India’s weightage in the MSCI Global Standard (Emerging Markets) index has reached a historic high of 18.2% following MSCI’s February review. This surge, nearly doubling since November 2020, is attributed to various factors such as standardized foreign ownership limits, sustained domestic equity rally, and relative underperformance of other emerging markets, particularly China.

Factors Driving India’s Weightage Surge

1. Standardized Foreign Ownership Limit (FOL) in 2020: India’s adoption of standardized foreign ownership limits has contributed to its increased weightage in the MSCI index.
2. Sustained Domestic Equity Rally: The consistent upward trend in domestic equities has bolstered India’s position in the MSCI index.
3. Relative Underperformance of Other Emerging Markets, Especially China: Compared to other emerging markets, notably China, India’s performance has been relatively stronger, leading to a higher weightage in the MSCI index.

Potential Growth Projection

India’s robust performance suggests the potential for further growth in its weightage. With continued inflows from domestic institutional investors and steady participation from foreign portfolio investors, India could surpass a 20% weight in the MSCI Global Standard index by early 2024.

Impact of February Review

Additions to MSCI Global Standard Index:

• Five Indian stocks were added to the Global Standard index, reflecting the growing prominence of Indian equities.
• State-owned lenders Punjab National Bank and Union Bank of India were included in the large-cap index, while Bharat Heavy Electricals and NMDC joined the mid-cap index.
• GMR Airports Infrastructure transitioned from small-cap to mid-cap index.

Deletions and Changes:

• MSCI removed 66 Chinese stocks from the index while adding only five, indicating a significant shift in market dynamics.

Projected Inflows

Nuvama Alternative & Quantitative Research estimates up to $1.2 billion in passive foreign portfolio investment inflows to India’s standard and small-cap indexes following the February review, highlighting growing investor interest in Indian equities.