India Overtakes China in MSCI Index for the First Time, Driven by Stock Market Boom

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Updated Sep 18, 2024

India’s weight in the MSCI investible large, mid, and small-cap index has risen to 2.35%, surpassing China’s weight of 2.24%, according to Morgan Stanley.

India Overtakes China in MSCI Index for the First Time, Driven by Stock Market Boom

India has overtaken China for the first time in a key MSCI equities index, fueled by robust economic growth and substantial inflows.

Morgan Stanley reported on Thursday that India's weight in the MSCI investible large, mid, and small-cap index has climbed to 2.35%, surpassing China’s 2.24%.

"India will continue to gain share due to market outperformance, new issuances, and liquidity improvements," stated Jonathan Garner and other analysts at Morgan Stanley.

The global brokerage firm noted that India's nominal GDP growth rate is currently in the low teens, more than three times China’s growth, creating a significant earnings growth disparity.

China's index weight peaked in early 2021.

The MSCI Index, a benchmark for international investors, reflects the performance of various companies. Foreign Institutional Investors (FIIs) often use this index to allocate capital to domestic markets.

India is now the sixth-largest market globally, just behind France, according to the brokerage.

Earlier this month, Morgan Stanley projected that India would surpass China in the MSCI Emerging Markets index as India’s stock market rally is “only past the halfway mark.”

Analysts predict that India's increasing weight in the MSCI indexes will attract more inflows.

India ranks among the top-performing equity markets globally. This year, benchmark indexes NSE Nifty 50 and S&P BSE Sensex have surged 17% and 15%, respectively.

Conversely, China’s Shanghai Composite Index has dropped around 9% this year due to economic and real estate sector concerns.

Morgan Stanley maintains an ‘overweight’ position on India and an ‘underweight’ stance on China in its pan-Asia EM asset allocation, expecting India to continue gaining share due to market outperformance, new issues, and improved liquidity.

India's rising position coincides with expectations that the US Federal Reserve will reduce key rates to achieve a soft landing. Traders are anticipating a half-point cut, which could bring inflows to emerging markets, with India likely to benefit the most.