India’s MSCI EM Weight Falls Under 14%, Ranking Slides to Fourth

India’s position in the MSCI Emerging Markets Index has slipped to fourth place after its weightage dropped below the 14% mark, reflecting relative underperformance and valuation-driven recalibrations in the latest index reshuffle.

According to the latest MSCI review, India’s weighting has moderated to under 14%, down from levels above 15% seen in late 2024 when the country briefly emerged as the second-largest constituent in the benchmark. The shift comes amid strong rallies in select North Asian markets and changes in free-float market capitalisation across constituents.

China continues to retain the largest share in the index despite a structurally declining long-term weight, followed by Taiwan and South Korea, pushing India to the fourth position in the emerging markets pack.

Valuations, Free-Float Adjustments Drive Shift

The MSCI EM Index allocates country weights based on free-float adjusted market capitalisation. India’s moderation reflects three core factors:

• Profit-booking in large-cap financials and IT stocks
• Slower relative earnings upgrades versus some North Asian peers
• Free-float recalibrations following stake sales and promoter adjustments

India’s equity markets had seen strong foreign portfolio investor (FPI) inflows through 2023 and early 2024, pushing valuations to a premium versus other emerging markets. At its peak, India traded at nearly a 20–25% premium to the broader EM basket on a forward price-to-earnings basis.

However, as capital rotated toward relatively cheaper Asian technology exporters and semiconductor-driven markets, India’s relative weight tapered.

The country currently accounts for roughly one-seventh of the $1.8–2 trillion in assets benchmarked globally to the MSCI EM Index, making even small weight changes significant for passive flows. A 1 percentage point shift in weight can translate into estimated passive inflows or outflows of $1.5–2 billion, depending on tracking intensity.

Passive Flow Implications and Market Impact

India’s reduced index weight could lead to marginal passive outflows from exchange-traded funds (ETFs) and index-tracking funds benchmarked to MSCI EM. However, analysts note that active allocations remain structurally positive on India due to:

• Strong nominal GDP growth
• Political stability
• Deepening domestic investor participation
• Corporate balance sheet deleveraging

Over the past five years, India’s weight in MSCI EM has more than doubled, rising from below 8% in 2019 to recent highs above 15%, underscoring the structural re-rating of Indian equities in the global allocation matrix.

Despite the latest dip, India remains one of the fastest-growing large economies in the EM universe and continues to command one of the highest earnings growth forecasts among major index constituents.

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