India Surpasses China to Become 6th Largest Market in MSCI ACWI
India has reached a notable achievement by becoming the sixth-largest market in the MSCI All Country World Investable Market Index (ACWI IMI), surpassing China and coming just behind France. This is the first time India has claimed the top spot among emerging markets (EM) in this global index, which tracks the performance of capital markets worldwide. As of the end of August, India's weight in the MSCI ACWI IMI stood at 2.35%, 11 basis points ahead of China’s 2.24%, while France maintains a slight lead of just three basis points.
The MSCI ACWI IMI index, which covers large- and mid-cap stocks, is a more comprehensive version of the widely followed MSCI ACWI Index. Despite India’s recent advancement, China still holds a higher weight in this broader index, with 2.41% compared to India’s 2.07% as of September 16.
Analysts believe that while India’s new status as the leading emerging market in the MSCI ACWI IMI may not trigger significant passive investment inflows, it does enhance the country’s image. The exchange-traded funds (ETFs) tracking this index have relatively modest assets of under $2 billion. Nonetheless, India's position as the top EM and its sixth-largest weight in the MSCI ACWI IMI underscores its rising importance in the global investment landscape.
Jonathan Garner, Chief Equity Strategist for Asia and Emerging Markets at Morgan Stanley, stated, “India is likely to continue gaining market share due to its strong performance, new stock listings, and improved liquidity”. He also highlighted that India’s current nominal GDP growth rate, in the low teens, is more than three times that of China. This has led to a significant divergence in corporate performance and earnings growth between the two countries.
Since its peak in early 2021, China’s weight in the MSCI ACWI IMI has been cut in half, while India’s has more than doubled. In August, India also overtook China for the first time in the MSCI Emerging Markets Investable Market Index (EM IMI). The combined weight of Indian stocks in the MSCI EM IMI now stands at 22.27%, about 70 basis points higher than China’s 21.58%.
The MSCI EM IMI index is followed by passive funds with around $125 billion in assets under management, whereas the broader MSCI EM index is tracked by funds managing approximately $500 billion. In a pan-Asian and EM portfolio, Morgan Stanley has its highest overweight positions in India and Japan at 150 basis points each, while it remains 150 basis points underweight on China.