India nears China’s position as emerging-market stock leader

The shift in emerging-market indices highlights India’s growing economic and market prominence reflecting a strategic realignment that could influence global investment flows. India’s rising position in the EM index is likely to attract investors looking for stability and reduced exposure to China's evolving risks. Analysts note that,India is set to narrow the gap with China, driven by steady economic expansion, surge in foreign direct investments, strong domestic consumption, and structural reforms. The country’s stock market has outperformed many of its peers, reflecting confidence in its long-term growth trajectory. With a young and growing population, India is expected to maintain its growth momentum, providing a compelling alternative to China for investors seeking exposure to emerging markets.
According to information, China’s standing in emerging markets has shrunk in the past few years, while India’s has steadily expanded. At its peak in 2020, China accounted for 40% of the MSCI EM Index, but that weighting has dropped amid Beijing’s regulatory crackdowns and efforts to deleverage its indebted property sector. Meanwhile, by the end of July, India’s weighting in the MSCI Asia Pacific Index , a key regional benchmark, was just 2.34 percentage points behind China’s, , a consistent trend across most key indices from leading providers.

India long touted as the “next China” has emerged as a favorite among investors, driven by its robust economic growth, a growing middle class and burgeoning manufacturing sector. Meanwhile, China is dealing with long-term economic challenges and increasingly strained relations with the West.Many global investors who didn’t look at India as a standalone allocation in the past would now look at it more favorably,” Hiren Dasani, co-head of Emerging Markets Equity and lead portfolio manager of India Equity strategies at Goldman Sachs Asset Management, reportedly quoted as saying.With India's economy expected to continue its upward trajectory, this shift could mark a turning point, positioning the country as a key player in the global equity markets and offering investors a new anchor in the emerging-market space.

(Writer is a Finance Research Analyst, based in Gandhinagar, Gujarat)