By South China Morning Post | Created at 2026-06-25 08:41:57 | Updated at 2026-06-25 10:05:53
1 hour ago
In July 2024, India’s weight in the MSCI Emerging Markets Index, a leading gauge of stocks in developing economies, hit a record high of 19.99 per cent. At the time, this was less than three percentage points below China’s weight, which at one point was as high as 43 per cent.
Between 2022 and 2024,
India was the darling of emerging market equity investors. The combination of the country’s fast-growing economy, strong corporate earnings, the Covid-19 pandemic-induced boom in retail trading and the dramatic deterioration in sentiment towards China caused investors to pile into Indian shares.
In a report in October 2022, Morgan Stanley said India had “the conditions in place for an economic boom fuelled by offshoring, investment in manufacturing, the energy transition and the country’s advanced digital infrastructure. These drivers will make it the world’s third-largest economy and stock market by the end of the decade”.
Fast forward to today, and the bull case for India is less compelling. At the end of last month, the country’s weight in the index was below 11 per cent, its lowest level since July 2021. Foreign investors’ cumulative net purchases of Indian shares, which hit a record high in 2024, have fallen to their lowest level since 2016.
India’s equity market is no longer in the world’s top five by market capitalisation, having fallen behind Hong Kong, Taiwan and South Korea in recent years. With the exception of Indonesia, it is the least-preferred major stock market in the Asia-Pacific, according to respondents to Bank of America’s latest Asia Fund Manager survey on June 16.
Several factors are at play. US President Donald Trump’s impulsive decision in August last year to raise the tariff rate on imports from India to a punitive 50 per cent dampened the outlook for exports and foreign direct investment. This cast doubt over India’s ambition to become a global manufacturing hub.
