India has reached a significant milestone by overtaking China to become the largest market in the MSCI Emerging Markets (EM) Investable Market Index (IMI). As of the end of August, India now leads among emerging markets, signalling a noteworthy shift in global economic power dynamics.

China’s decline

This development follows a gradual decline in China's weight within the MSCI EM index, which has been diminishing since its peak in early 2021. Over the past two years, China’s representation in the index has fallen by half a percentage point, paving the way for India's ascent. Currently, India ranks as the sixth-largest market globally, just behind France, and is poised to surpass China in the broader MSCI Emerging Markets Index, which encompasses large, mid, and small-cap stocks from 24 emerging market economies.

Morgan Stanley is optimistic

International brokerage Morgan Stanley has expressed optimism regarding India's continued market performance. In a recent report, the firm maintained an 'overweight' stance on India while adopting an 'underweight' position on China in its pan-Asia EM asset allocation strategy. Morgan Stanley attributes India’s robust performance to its increasing market share, strong new issuances, and enhanced liquidity.
India's economy is currently exhibiting notable growth, with a nominal GDP growth rate in the low teens—approximately three times that of China. This disparity has resulted in contrasting operating and earnings growth trends between companies in the two nations, with Indian firms consistently outperforming their Chinese counterparts.