India continues to be Morgan Stanley’s top choice among emerging markets (EM) and holds the second spot in the Asia-Pacific region. Recently, India surpassed China on September 4 in the MSCI Emerging Markets Investable Market Index (IMI), becoming the largest weight. India is now close to overtaking China as the top weight in the broader MSCI Emerging Markets index as well.
The MSCI Emerging Markets IMI tracks large, mid, and small-cap stocks from 24 emerging market economies. In a recent report, international brokerage Morgan Stanley analysed whether this development is good or bad for Indian equities. Currently, foreign investors are facing stiff competition from domestic players for the same equities. Therefore, an increase in the issuance pipeline could be vital to attracting more foreign investors, according to the note.
Morgan Stanley pointed out that India’s rising index weight could be attributed to market exuberance or fundamental factors such as improving free-float and increasing relative earnings of Indian companies. The brokerage firm emphasised that the latter holds true for India, making the country’s new position in emerging markets less concerning. India continues to be Morgan Stanley’s leading pick among emerging markets and its second choice in the Asia-Pacific region.
The report also highlighted that a market correction might prompt dormant capital to flow into the market, thereby reducing the severity of any potential decline. While the firm acknowledged that there are possible factors that could lead to a market correction, they are not significant enough to disrupt the ongoing bull run in Indian equities. According to Morgan Stanley, the bull run has only passed its halfway point, with the potential for further growth ahead.
The note concluded that India’s weight in the EM index might continue to rise before reaching its peak, indicating that the current bull market could still have room to grow.
