India becomes a major player in the MSCI All-Country World Index: Overtakes China

India has surpassed China in weighting in the MSCI All-Country World Index, one of the world’s largest stock indices, as stock sales and rising liquidity of Indian companies make the country more attractive to investors. The share of India in the freely tradable, "investable" version of the MSCI All-Country World Index, which covers nearly all global stocks that can be bought on the open market, rose to 2.33 percent this month, surpassing China’s 2.06 percent. This makes India the sixth-largest weighting in an index dominated by U.S. companies. Analysts see this as a sign of the demand for Indian stocks as they are being unlocked for global investors, while China’s economy weakens and fund managers divest from China-related stocks. "This is a natural market development," explained Vivian Lin Thurston of William Blair Investment Management. "Indian stocks are performing well while Chinese stocks are lagging. There’s a rebalancing as MSCI adds and removes names, giving some of the more liquid Indian stocks more weight." The Indian blue-chip index Nifty 50 reached record highs this year, as the country’s economy reported the strongest GDP growth among major economies, and millions of middle-class households invested their savings in local mutual funds. Over $38 billion flowed into Indian stocks this year, more than in any of the past 16 years. Indian companies have the opportunity to benefit from the rising stock markets. Among the largest IPOs of the year are Ola Electric and Bajaj Housing Finance. Over $38 billion has been raised in the Indian stock market according to Dealogic data, more than double the amount during the same period last year. Earlier this month, Indian stocks also took a larger share than Chinese stocks in the MSCI Emerging Markets Investable Index at 22 percent compared to 19 percent. In the unadjusted free-float calculation, China remains dominant in the MSCI Emerging Markets Index, but its share has fallen from 40 percent in 2020 to a quarter, while India’s share has increased from below 7 percent ten years ago to a fifth. However, U.S. markets still overshadow China, India, and all emerging markets, as U.S. stocks make up two-thirds of the world index. Around $4.6 trillion in assets are tied to the MSCI All-Country World Investable Market Index as a reference. "This is very significant," said Martin Frandsen of Principal Asset Management. "We’ve recognized that India shows significant improvements in value creation, similar to China, and offers many investment opportunities." Goldman Sachs analysts forecast an 8 percent growth for the Nifty 50 by September 2025, driven by double-digit corporate earnings. Yet, some analysts warn of high valuations in the Indian market. The 12-month price/earnings ratio of the MSCI India Index reached a record high of 24.7 – the highest it’s ever been. Thurston warns that the tide between China and India could turn again if the "depressed" valuations of Chinese companies recover. Despite high stock valuations, Rajat Agarwal of Société Générale believes that inflows to India will continue due to a favorable outlook for emerging markets, especially if the U.S. Federal Reserve lowers interest rates. "No one disputes that valuations in India are high," Agarwal added. "But domestic money continues to flow... in the short term, the situation will not reverse unless there is an external shock.