India’s weightage in the MSCI Global Standard Index has reached a record high of 18.2% in the latest February review by MSCI. This is the second-highest weightage in the index after China, which is at 23%. India’s performance in the global market is driven by several factors, such as its corporate earnings growth, macroeconomic outlook, and standardized foreign ownership limit. India has the potential to surpass a 20% weight in the MSCI Global Standard index by early 2024.
What is MSCI Global Standard Index?
The MSCI Global Standard Index is a widely used benchmark for global equity markets. It covers approximately 85% of the free float-adjusted market capitalization in each country. The index is composed of large and mid-cap stocks across 23 developed markets and 27 emerging markets.
The index is reviewed quarterly to reflect changes in the market size, liquidity, and free float of the constituents. The index also incorporates changes in foreign ownership limits and foreign investment restrictions in different countries.
Why is India’s weightage increasing?
India’s weightage in the MSCI Global Standard Index has increased significantly since November 2020, when it was around 8%. According to Nuvama Alternative & Quantitative Research, a leading provider of alternative data and analytics, the increase can be attributed to multiple factors, such as:
- India’s implementation of standardized foreign ownership limit (FOL) in 2020, which increased the investable weight factor (IWF) of many Indian stocks.
- Robust performance by Indian equities, particularly in the mid-cap segment, leading to numerous inclusions in every review.
- Comparative underperformance of other emerging markets, notably China, which saw a decline in its weightage due to its regulatory crackdown on its tech sector and other issues.
In the February review, MSCI added five Indian stocks to its Global Standard Index without removing any, a move that underscores the growing confidence in India’s market. Conversely, the index provider removed 66 Chinese stocks while adding five new ones, indicating a shifting landscape in global markets.
What are the implications of India’s higher weightage?
India’s higher weightage in the MSCI Global Standard Index has positive implications for its equity market and economy. According to Nuvama, India could experience passive inflows of up to $1.2 billion from foreign portfolio investors (FPIs) into the standard and small-cap indexes following the February review.
Moreover, India’s higher weightage will lead to increased institutional holdings, which are considered to be generally long term in nature. This will provide stability in prices over the long term, according to Apurva Sheth, head of market perspectives & research at SAMCO Securities.
Additionally, India’s higher weightage will enhance its visibility and attractiveness among global investors, who are looking for diversification and growth opportunities. India’s corporate earnings growth and political stability are also reasons for its appeal, according to Sanjeev Hota, vice president of research at Sharekhan.
Conclusion
India’s weightage in the MSCI Global Standard Index has reached a historic high of 18.2%, making it the second-highest after China. This reflects India’s strong performance in the global market, driven by several factors such as its corporate earnings growth, macroeconomic outlook, and standardized foreign ownership limit. India has the potential to surpass a 20% weight in the MSCI Global Standard index by early 2024. India’s higher weightage will bring more passive inflows from FPIs, increase its institutional holdings, and enhance its visibility and attractiveness among global investors.
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