India Overtakes China In MSCI EM IMI To Become Largest Weightage

India's rising weight in a key emerging market index would draw more absolute foreign flows in the country's financial markets, even as it competes with local participants for a share of the pie, Morgan Stanley said on Thursday. The country overtook rival China to become the largest weighting in the MSCI EM investable market index this week, and is on the way to ace its neighbour in the EM index.

India's near 2% weight in the global index is no longer tracking error and therefore, global funds need to buy Indian exchange-traded funds or stocks, the investment bank said in a note.

The firm noted that foreign portfolio flows are being challenged by domestic market participants who are outbidding them. "This is why a growing issuance pipeline is crucial for increasing foreign participation, which we expect to see in the coming months," it said.

India's weightage in the EM gauge jumped to a record of 19.8% from 18.8% in May, while that of table topper China slipped to 24.2% from 24.7%, as per the index aggregator's quarterly review for August.