India overtakes China in Morgan Stanley IMI, could lead to $4.5 bn equities inflows

New Delhi: With India overtaking China in terms of weightage in the Morgan Stanley emerging markets IMI, Indian equities could see inflows of about USD 4.5 billion (Rs 37,000 crore), according to estimates.

This week, Morgan Stanley announced that India has overtaken China in the MSCI Emerging Markets Investable Market Index (MSCI EM IMI). The weight of India in MSCI EM IMI stood at 22.27 per cent compared to 21.58 per cent of China.

While the main MSCI EM index (standard index) covers the large and midcap space, the IMI includes a more comprehensive range, encompassing large, mid, and small cap stocks.

India's heavier weight vis-a-vis China in MSCI IMI stems from the greater small-cap weighting in its basket, official sources said. Post this rejig in MSCI EM IMI, Indian equities could witness inflows of about USD 4-4.5 billion, according to analysts' estimates.

"The rebalancing reflects broader market trends. While Chinese markets have struggled on the back of economic headwinds in China, India's markets have benefitted from favourable macroeconomic conditions," official sources said.

They said that in the recent past, India has posted a much superior equity market performance, driven by strong macroeconomic fundamentals of Indian economy as well as robust performance by Indian corporates.

Further, the gains in Indian equity market have been broad based, reflected across large cap as well as mid-cap and small-cap indices.

Key factors contributing to this positive trend include a 47 per cent increase in foreign direct investment (FDI) in the early part of 2024, decreasing Brent crude prices, and substantial foreign portfolio investment (FPI) in Indian debt markets, official sources added.

"In order to maintain its pace of desired investments for economic growth and development, India needs capital from both domestic and foreign sources. In this context, increase in weight of India in global EM indices gains positive significance," official sources said.