MSCI Inc.

New York Stock Exchange
Back to all articles
Slightly Bullish +25

India still relevant for emerging market investors despite lower MSCI weightage: Jefferies

📉 India's weightage in the MSCI Emerging Markets Index has declined from 19.5% to 12%, a shift attributed to what Jefferies terms a "reverse AI trade."

💻 Korean and Taiwanese indices have seen their benchmark weights increase, with Korea reaching 20.6% and Taiwan rising to 25%.

🚀 Indian mid-cap stocks rallied 19.2% from early April lows, significantly outperforming the broader Nifty 50 blue-chip index which gained only 9.7%.

💰 Despite a net foreign selling of USD 21.1 billion year-to-date (the highest ever recorded), Indian equities have seen a strong rally in the mid-cap segment.

📈 Since early 2023, the MidCap Index has climbed 97% compared to just a 34% gain for the Nifty 50, highlighting a clear market divergence.

🛡️ Domestic equity mutual fund inflows have acted as a crucial cushion against foreign outflows, accelerating to Rs 500 billion in March alone.

🏦 Systematic Investment Plans (SIPs) contributed Rs 321 billion of the total domestic inflow last month, while the National Pension Scheme added USD 1.7 billion monthly in Q1.

💹 The MSCI rebalancing reduces India's portfolio weightage by one percentage point to 12%, while increasing weights for Korea and Taiwan.

📊 Forecast profits for Samsung and Hynix are expected to reach KRW 452 trillion, which is three times the projected profits of India's entire Nifty 50 universe.

⚠️ Jefferies warns that while India remains relevant, the risk of complete benchmark irrelevance is now more pronounced for Asian markets like ASEAN.

📉 The performance divergence shows Indian mid-caps gaining ground even as foreign capital continues to exit Indian equities at record paces.

Bullish Signals
  • Indian mid-cap stocks delivered a strong rally of 19.2% from the low on April 2, reaching a peak of 62,094, significantly outperforming the broader Nifty 50 Index which gained only 9.7%.
  • Since the beginning of 2023, the MidCap index climbed an impressive 97%, vastly surpassing the 34% gain seen in the Nifty 50 Index despite significant foreign capital outflows of net USD 21.1 billion year-to-date.
  • Domestic equity mutual fund inflows accelerated to Rs 500 billion in March, marking the highest level in eight months, with SIPs accounting for Rs 321 billion and providing a crucial cushion against foreign selling.
  • The National Pension Scheme contributed approximately USD 1.7 billion per month into equities during the first quarter of 2026, further stabilizing market inflows.
Risk Factors
  • India's weighting in the MSCI Emerging Markets Index has declined significantly from 19.5% to 12% since the start of last year due to a 'reverse AI trade', reducing its relevance for emerging market investors.
  • Korea and Taiwan have increased their MSCI weightings to 20.6% and 25% respectively, further diluting India's position as a primary destination for benchmark-driven capital.
  • Indian mid-cap stocks are now considered 'relatively expensive' following the rally, which occurred despite significant foreign net selling of USD 21.1 billion year-to-date.
  • Foreign outflows in India (USD 21.1 billion YTD) have already surpassed the record annual net selling of last year (USD 18.8 billion), indicating persistent capital drain from the blue-chip and broader market.
  • Indian equities remain significantly underperforming peers; Samsung and Hynix are forecast to earn profits totaling USD 307bn this year, which is three times the total forecast profits of USD 102bn for India's entire Nifty 50 universe.
  • The Nifty 50 Index has struggled to recover its early January peak, remaining down 7.8% from that high despite a gain of 9.7% from its April low, contrasting with the broader mid-cap rally.
  • Portfolio adjustments linked to MSCI benchmark shifts have forced reductions in India's weighting by one percentage point specifically affecting relative-return portfolios in the Asia Pacific ex-Japan region.
Full Analysis
Jefferies analysts argue that India remains a critical destination for emerging market investors despite a significant decline in its weightage within the MSCI Emerging Markets Index. The report, titled "Greed & Fear," highlights that while India faces a "reverse AI trade" leading to an index weightage drop from 19.5 percent to 12 percent, it has not suffered complete benchmark irrelevance like ASEAN markets. This reduction in weight is primarily due to the surge in earnings forecasts for Korean and Taiwanese semiconductor giants, specifically Samsung and Hynix, which are expected to earn approximately US$307 billion this year compared to US$102 billion for India's Nifty 50 universe alone. Domestically, Indian equities have shown resilience through a robust rally in mid-cap stocks, outperforming the broader blue-chip Nifty 50 Index even amid substantial foreign capital outflows of USD 21.1 billion year-to-date. The Nifty MidCap 100 Index surged 19.2 percent from its April low to reach 62,094 points, whereas the Nifty 50 gained only 9.7 percent and remains significantly below its January peak. Analysts note that this rally makes mid-cap stocks relatively expensive but maintains the segment's interest for the GREED & FEAR strategy, suggesting a divergence where smaller companies continue to lead gains despite global shifts toward semiconductor-driven markets in Asia. To offset foreign selling, domestic equity mutual fund inflows have accelerated, reaching Rs 500 billion in March, with systematic investment plans accounting for roughly half of that total. Furthermore, the National Pension Scheme has contributed approximately USD 1.7 billion per month into equities during the first quarter of 2026, providing a crucial cushion against foreign outflows. Consequently, portfolio adjustments in the Asia Pacific ex-Japan relative-return strategy have seen India's weighting reduced by one percentage point to 12 percent, while weights for Korea and Taiwan increased to 18 percent and 21 percent respectively, reflecting the structural shift in emerging market equity valuations driven by high-tech earnings.