India is poised to narrow the gap with China in MSCI Inc.'s gauge for developing nations, signaling a shift in the global investment landscape. Analysts from firms like Smartkarma and IIFL Securities Ltd. expect India's weight in the MSCI Emerging Markets Index to rise by at least one percentage point following the index provider's upcoming review.
This increase would bring India's representation almost on par with China, which currently accounts for 22.33% of the benchmark. India, long considered the "next China," has been steadily climbing, now standing at 19.99%. Experts believe this higher weighting for India will position it as the new anchor for emerging market equities, likely driving increased investment flows into the country.
"It can make the EM index more balanced, where secular growth stories like India receive higher allocation compared with more cyclical markets like China and Korea," says Vivek Dhawan, portfolio manager at Candriam Belgian NV.
The diverging performance of Indian and Chinese stocks has been striking. While China has grappled with long-term economic challenges and strained relations with the West, India has emerged as a favorite among investors, driven by its robust economic growth, a burgeoning middle class, and a thriving manufacturing sector.
"Many global investors who didn't look at India as a standalone allocation in the past would now look at it more favorably," says Hiren Dasani, co-head of Emerging Markets Equity and lead portfolio manager of India Equity strategies at Goldman Sachs Asset Management.
This shift has significant implications. Index followers may be compelled to allocate funds to India's already-expensive stocks, potentially creating opportunities for savvy investors to capitalize on the country's promising future.
As India's influence in the MSCI EM Index continues to grow, it highlights the nation's transformative journey and its rising prominence on the global investment stage. With the support of Prime Minister Narendra Modi's modernization initiatives and the world's increasing appetite for India's dynamic economic landscape, the country's ascent is poised to reshape the emerging market landscape in the years to come.
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