India has overtaken China in one of the world’s most significant stock market benchmarks, as growing liquidity in Indian companies and an increase in share sales make the country more accessible to global investors.
India’s share in the free-float version of the MSCI All-Country World Index, which tracks nearly all investable stocks worldwide, reached 2.33% this month, surpassing China’s 2.06%. This marks a pivotal moment as India becomes the sixth-largest component in the index, which remains dominated by U.S. companies.
The surge in Indian stocks aligns with rising global demand for investment in the country, fueled by robust economic growth and increasing middle-class savings funneled into local mutual funds. India’s blue-chip Nifty 50 index has seen record-breaking performance, further boosting investor confidence.
“Indian equities are soaring while Chinese stocks are lagging, prompting a rebalancing in the market,” said Vivian Lin Thurston, portfolio manager at William Blair Investment Management. MSCI’s periodic updates, which add and drop stocks based on liquidity, have allowed Indian stocks to gain a stronger foothold.
Domestic investments in Indian equities have totaled $38 billion so far this year, exceeding the annual inflow of the past 16 years. The Indian IPO market has also been booming, with significant offerings like Ola Electric and Bajaj Housing Finance leading the way.
According to Dealogic, more than $38 billion has been raised in India’s equity market this year, making it the largest in Asia and more than double last year’s figure.
India’s success has also extended to the MSCI Emerging Markets Investable Index, where Indian stocks now account for 22%, compared to China’s 19%. Although China remains ahead when not adjusted for free-float, its market share has fallen significantly from 40% in 2020 to 25%, while India has climbed from below 7% to 20% over the past decade.
Still, U.S. stocks continue to dominate the global market, making up two-thirds of the MSCI All-Country World Index, which tracks assets worth $4.6 trillion as of early 2024.
“This shift is significant,” said Martin Frandsen, a global equity portfolio manager at Principal Asset Management. “India’s market shows innovation and value creation, offering numerous investment opportunities similar to China.”
Goldman Sachs analysts predict the Nifty 50 will grow another 8% to reach 27,500 by September 2025, driven by corporate earnings growth. However, some analysts caution that the high valuations in India’s stock market may lead to future corrections.
Despite these concerns, Rajat Agarwal, Asia equity strategist at Société Générale, believes that the favorable outlook for emerging markets, especially with the U.S. Federal Reserve expected to cut interest rates, will keep investments flowing into India. “In the near term, this momentum is unlikely to reverse unless there’s an external shock,” Agarwal said.
Experts also warn that India’s lead over China could be temporary if the depressed valuations of Chinese companies recover. Nonetheless, for now, India has firmly positioned itself as a major player on the global investment stage.
