India narrows gap with China in key MSCI index with weight hitting new high

India has narrowed the gap with China in MSCI's Global Standard index, which tracks emerging market stocks for investors, after the latest revision. Index provider MSCI raised, India's weightage in the index to an all-time high of 18.2% on Tuesday, which could lead to inflows of about $1.2 billion, analysts said.

In comparison, China's weight in the index fell to 25.4% after the February revision, from 26.6% a year ago. The convergence of weights between Indian and Chinese stocks has intensified since August 2020, when China's weightage was five times that of India's.

MSCI's revisions will come into effect after market close on Feb. 29. Indian shares had a 17.9% weight on the index ahead of the February review.

The gain for India can be attributed to a sustained rally in equities and relative underperformance of other emerging markets, especially China, Nuvama Alternative & Quantitative Research said in a note on Tuesday.

India could surpass a 20% weight on the MSCI index by early 2024, on consistent flows from domestic institutional investors and steady foreign portfolio investor participation, Nuvama said.

MSCI added five Indian stocks to its Global Standard index and did not move any out. In contrast, the index provider removed 66 Chinese stocks while adding five.

India's state-owned lenders Punjab National Bank and Union Bank of India, were added to the large-cap category, while Bharat Heavy Electricals, and NMDC were included in the mid-cap category. GMR Airports Infrastructure was moved to the mid-cap category from small-caps.

India could witness up to $1.2 billion of passive foreign flows after the February review, Nuvama said.

About 27 small-cap stocks were added to the MSCI Domestic index, while six were either moved to other categories or removed.

Tata Motors, and Macrotech Developers were added to the domestic index under the large-cap category while Punjab National Bank, Canara Bank, and Embassy Office Park REIT to the mid-caps.

Bharat Heavy Electricals, Persistent Systems, MRF, Suzlon Energy, and Cummins India, were moved to the mid-cap index from small-caps.