India’s weightage in the MSCI Emerging Markets Index has reached 19.9 per cent, very close to China’s weightage which has dropped down to 24.42 per cent from nearly 40 per cent in 2020.
India’s weightage has improved significantly in the recent years, it used to have a single digit representation in the EM Index for years.
The MSCI Emerging Markets Index captures large and mid-cap representation from across 24 Emerging Markets (EM) countries. With 1,328 constituents, the index covers approximately 85 per cent of free float-adjusted market capitalization in each of the 24 EM countries.
As per the MSCI EM Index as on Aug 2024, the top 5 countries account for nearly 80 per cent of the weightage in the MSCI Emerging Market Index. China leads with 24.42 per cent followed by India at 19.9 per cent, Taiwan at 18.77 per cent, Korea at 11.67 per cent, Brazil at 4.50 per cent are in the top five. Rest 19 countries have a total weightage of 20.73 per cent.
EM countries include, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
China was the heavyweight in the Index since it started in 2001, with weight of up to 40 per cent in 2020. But now with India’s gaining strength, China’s weight in the Index continues to decline. Declining weightage of China’s is attributed to Chinese companies lacking capabilities to meet higher requirements of market capitalisation or minimum free float requirement standards set by MSCI methodology.
Free float market cap is calculated by taking the share’s price and multiplying it by the number of shares available in the market for trade.
Whereas India’s weight is increasing in the MSCI EM Index is because of its economic development in recent years. India is one of the major fastest growing economy in the world with a growth rate of 7-8 per cent.
The growth of India’s services sector especially in IT and telecommunications has been a major growth driver of India’s economy. Added to it is India’s two third of the working population are young and provide a cheap and dynamic labour force.
Post Covid, Indian markets have shown strong resilience and given better returns than other EM countries.
The Benchmark Index Nifty 50 has given a return of 17.35 per cent this year (till September). In the last five years Nifty 50 has given an annual return of 14.9 per cent in 2020, 24.12 per cent in 2021, 4.32 per cent in 2022 and 19.42 per cent in 2023.
Other factors which contributed to India’s higher weightage in MSCI EM Index includes SEBI’s relaxed norms of foreign ownership limits in Indian companies and surge in IPOs in the Indian market. In 2023, 243 companies brought their IPOs and got listed on the Indian exchanges. In 2024, so far IPO momentum is intact and many big and small companies IPOs are planned in forthcoming months.
The list includes ₹25,000 crore IPO of auto major Hyundai Motor India, ₹3,750 crore IPO of quick commerce food delivery company Swiggy and ₹9,000 crore IPO of Zomato and ₹10,000 crore IPO of Public sector company NTPC Green.
All this will increase market liquidity and trading volume thereby increased weightage of India in the MSCI EM Index in future.
