India may soon beat China as most influential emerging market

India is closing in on China as the most influential nation among key emerging markets, according to Morgan Stanley.

Driven by the ability to attract more Foreign Portfolio Investors (FPIs) and propped by a stock market that, although already deemed among the world’s best, is “only past the halfway mark”, Indian might actually leave China behind in the race very soon.

India’s weightage in the Emerging Market Index of Morgan Stanley Capital International (MSCI) has increased to 19.8 per cent in August, and the margin with China (24.2 per cent) is rapidly narrowing.

Since the end of 2020, India has witnessed a surge in weightage from just 9.2 per cent. China’s weightage, on the other hand, has fallen from 39.1 per cent in the same period.

Overall, India is Morgan Stanley’s second favourite choice among emerging markets of the Asia-Pacific region after Japan.

MSCI is an investment research organisation that supplies stock indexes, portfolio analytics and governance tools to institutional investors. Its two indexes are globally recognised — the Emerging Market Index and the Frontier Markets Index. The MSCI Emerging Market Index constitutes 24 emerging economies that include India, China, Korea, South Africa, Egypt, Brazil, Thailand and Mexico. It gathers the market capitalisation of listed companies on a particular nation’s stock exchanges to arrive at its weightage.

MSCI notes that India’s surging weightage “essentially means more absolute foreign flows”. FPIs have so far purchased shares worth $6.33 billion this year.

The benchmark index Nifty50 recorded a 16-per cent high in 2024, which is greater than most markets including China. A level inflow from institutional investors within the country, besides traders and mutual fund investments, have contributed to the excellent show of the index.

"We are only past the halfway mark in the current bull market,” Ridham Desai, Managing Director at Morgan Stanley, says in the report, adding that India’s “weight in the EM index could have some more distance to travel before it peaks.”