India’s growing heft in MSCI EM index: what it means for the market
Mint explains: MSCI is a standalone NYSE-listed global index, whose stock indices are widely tracked by global asset managers, hedge funds, banks, corporates and insurance companies to allocate funds across global stock markets. The indices are widely used for passive investment by exchange traded funds, index funds and some fund of funds. Passive fund returns mirror index returns unlike active funds which can beat or underperform benchmarks.
Some of the most tracked of its several indices are the All Country World Index, the Frontier Markets Index and the EM Index, launched in 1988, with India included in 1994. India has grown over the years with its weight set to double to 16.3% from four years ago once the latest rejig takes effect. It is second only to China, whose weight as of October-end was 29.89%.
India leads Taiwan (15.07%), South Korea (11.78%) and Brazil (5.42%). As a standalone country, India has outperformed the benchmark EM index in terms of generating net returns of 4.75% in the year through 31 October against a negative 2.14% return by MSCI EM. The longer-term performance is even more impressive, with net returns of an annualized 8.33% in 10 years against just 1.19% annualised returns by MSCI EM.
The stock weights on EM index are based on free float market capitalization, or the shares available for buying and selling by foreign investors. The higher the market capitalization, the higher the weight and the allocation by investors. Reliance Industries (weight 1.34%), ICICI Bank (0.91%) and Infosys (0.87%) are among the top 10 stocks on MSCI EM.
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