India Surpasses Taiwan In MSCI EM Index To Secure Second Position After China

India has surpassed Taiwan in the MSCI Emerging Market Index, securing second place after China, with weightage increasing 7 percent to 17.1 percent in eight years. This has made India a favorable investment destination for foreign funds, as recent Nuvama notes point out, with India surpassing a 20 percent weight in the MSCI EM Index by early 2024 with the ongoing domestic institutional investments and potential steady FII (foreign institutional investors) participation.

Validating this claim, recent Jefferies notes suggest that India is set to attract more foreign investments in 2024 in the medium term with its growing size, favourable conditions such as expected political stability, a rising investment cycle, and a peaking US dollar, despite EM portfolios remaining relatively light.

The scenario is evident in the Indian equity market, with the highest inflows observed in the last 11 years after a significant outflow of $33 billion from 2H21–1H22 on the back of India”s rising weight in EMs. India”s neutral weight in the benchmark MSCI EM has risen by 3.5 percentage points over the past six quarters, despite India”s relative position in large EM active funds remaining closer to neutral rather than significantly above the average.

Therefore, the potential for FPIs to take a larger position could become a crucial driver for future flows, Jefferies noted.