(Commonwealth_ India) India has recently surpassed China in the weight of one of the world’s largest stock market benchmarks, reflecting the growing appeal of Indian equities to global investors. As of this month, India’s share of the free-float, investable version of the MSCI All-Country World Index—which encompasses nearly all global stocks available for purchase—has risen to 2.33%, eclipsing China’s 2.06%. This adjustment positions India as the sixth-largest component of an index predominantly led by US companies.
This shift highlights robust demand in India’s vibrant stock market, which is currently attracting international investors, particularly as the Chinese economy faces challenges. Vivian Lin Thurston, a portfolio manager at William Blair Investment Management, noted, “It is a natural evolution of the market. With Indian equities performing strongly while Chinese stocks lag, we are witnessing a rebalancing. MSCI is adjusting its allocations, favouring Indian stocks that have demonstrated improved liquidity.”
The Nifty 50 index, India’s benchmark stock index, has reached record highs this year, buoyed by the country’s status as the fastest-growing major economy. Domestic investment has surged, with approximately $38 billion flowing into Indian equities in 2024, surpassing the annual total for each of the past 16 years. This influx has been accompanied by significant initial public offerings, such as those from Ola Electric and Bajaj Housing Finance, contributing to over $38 billion raised in equity markets in 2024—the highest in Asia and more than double the total from the same period last year, according to Dealogic data.
Moreover, Indian stocks have also become the largest free float in the MSCI Emerging Markets investable index, comprising 22% compared to China’s 19%. While China maintains a lead in the unadjusted MSCI Emerging Markets index, its share has declined from 40% in 2020 to approximately 25%. In contrast, India has increased its stake from below 7% a decade ago to about 20% today.
Despite this positive momentum, both China and India remain overshadowed by the bull market in U.S. equities, which account for two-thirds of the global index. MSCI’s All-Country World Investable Market index benchmarked approximately $4.6 trillion in assets as of early 2024. This is a significant development, stated Martin Frandsen, global equity portfolio manager at Principal Asset Management. India has shown substantial improvement in value creation and innovation, offering numerous investment opportunities in high-quality businesses.
Goldman Sachs analysts project the Nifty 50 will advance by 8%, reaching 27,500 by the end of September 2025, driven by corporate earnings growth in the mid-teens. However, some analysts express caution regarding current valuations in the Indian market. The 12-month forward price/earnings ratio for the MSCI India index has reached a record high of 24.7, making it the most expensive on record.
Thurston cautioned that the dynamics between China and India could shift again if the undervalued Chinese stocks recover. Nonetheless, Rajat Agarwal, Asia equity strategist at Société Générale, believes that investment flows into India are likely to persist, particularly with a more favourable outlook for emerging markets as the U.S. Federal Reserve signals potential interest rate cuts. While many recognise that Indian valuations are high, domestic investments remain unabated. This tendency is unlikely to reverse in the near term unless an external shock occurs, Agarwal remarked.
