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Slightly Bullish +25

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

📉 India's weighting in the MSCI Emerging Markets Index has fallen to 12%, down from 19.5% last year, primarily due to a "reverse AI trade" that favored Korean and Taiwanese tech firms.

💰 Despite significant foreign capital outflows of net $21.1 billion year-to-date, Indian mid-cap stocks have rallied 19.2% from their April low, significantly outperforming the blue-chip Nifty 50 index.

🇮🇳 Domestic mutual fund inflows reached ₹500 billion in March, with SIPs accounting for ₹321 billion, acting as a crucial cushion against foreign selling pressure.

📊 The Nifty MidCap 100 Index has climbed 97% since the start of 2023, far surpassing the 34% gain seen in the broader Nifty Index over the same period.

⚠️ Jefferies analyst notes that while mid-caps have been interesting, the recent rally means they are looking relatively expensive again for investors.

🔋 Korean and Taiwanese tech giants like Samsung and Hynix are forecast to earn combined profits three times higher than the entire Indian Nifty 50 universe this year.

🔄 Benchmark adjustments in the Asia Pacific ex-Japan portfolio have seen India's weight reduced by one percentage point while weights for Korea and Taiwan were increased.

🌍 India remains relevant for emerging market investors as Jefferies warns that ASEAN markets face a risk of complete benchmark irrelevance similar to what India avoided recently.

📅 The report highlights that the quarter saw a decent rally in mid-cap stocks from the intraday low reached on April 2, diverging sharply from broader market trends.

💸 Foreign net selling of $21.1 billion already exceeded the record $18.8 billion seen throughout the previous year, indicating sustained capital drain despite domestic support.

Bullish Signals
  • Indian mid-cap stocks have seen a good rally and outperformed the broader market despite significant foreign capital outflows.
  • The Nifty MidCap 100 Index rose 19.2% from its low on April 2 to reach a peak of 62,094, significantly higher than the Nifty 50's gain of 9.7%.
  • Since the beginning of 2023, the MidCap index climbed 97%, significantly higher than the 34% gain seen in the Nifty Index.
  • Domestic equity mutual fund inflows provided a crucial cushion against foreign selling, accelerating to ₹500 billion in March, marking the highest level in eight months.
  • Systematic Investment Plans (SIPs) accounted for ₹321 billion of the total inflow in March, indicating strong retail investor confidence.
  • The National Pension Scheme contributed approximately $1.7 billion per month into equities during the first quarter, providing additional support to the market.
Risk Factors
  • India's MSCI Emerging Markets Index weightage has dropped to 12 per cent from a high of 19.5 per cent since the start of last year, significantly reducing its benchmark relevance compared to Korea and Taiwan.
  • Foreigners have sold a net $21.1 billion of Indian equities year-to-date, exceeding the previous record of $18.8 billion from last year.
  • The Nifty 50 Index is trading 7.8 per cent below its peak reached in early January despite posting gains, indicating weaker momentum compared to mid-caps.
  • Indian mid-cap stocks are now looking relatively expensive after a recent rally of 19.2 per cent from their April lows.
  • Samsung and Hynix are forecast to earn combined profits of $307 billion this year, which is three times the total forecast profits of $102 billion for India's entire Nifty 50 universe.
Full Analysis
A recent Jefferies Greed & Fear report argues that India remains a significant destination for emerging market investors even as its weightage in the MSCI Emerging Markets Index has declined to 12 percent due to a "reverse AI trade" favoring tech sectors in Korea and Taiwan. The analysis notes that while global benchmark shifts have reduced India's relative importance compared to giants like Samsung and Hynix, the Indian mid-cap segment has demonstrated remarkable resilience by outperforming the broader market during a period of substantial foreign capital outflows. Specifically, the Nifty MidCap 100 Index surged 19.2 percent from its April 2 low to reach a peak of 62,094, significantly diverging from the blue-chip Nifty 50, which gained only 9.7 percent over the same period and remained well below its January highs. Since the beginning of 2023, the mid-cap index has climbed 97 percent, far exceeding the 34 percent gain recorded by the broader Nifty Index. This strong performance occurred despite record foreign selling of Indian equities totaling $21.1 billion year-to-date, a figure that surpasses the previous annual record of $18.8 billion. The report attributes this resilience to domestic equity mutual fund inflows, which accelerated to ₹500 billion in March alone to cushion against the exodus of foreign money, with Systematic Investment Plans (SIPs) accounting for ₹321 billion of that total. Additionally, the National Pension Scheme contributed approximately $1.7 billion per month into equities during the first quarter of 2026, providing a crucial internal source of liquidity. However, the report warns that while the mid-cap segment remains the most interesting part of the market for investors focused on greed and fear, recent rallies have made these stocks appear relatively expensive again. The shifting global benchmarks are directly impacting portfolio allocations; as a result, Asia Pacific ex-Japan relative-return portfolios are adjusting weights to reflect the new reality where Korea's weighting increased to 20.6 percent and Taiwan's rose to 25 percent, displacing India's former dominance at 19.5 percent. Consequently, while India is still relevant, its benchmark irrelevance has notably improved in Asian markets compared to Asean regions, suggesting that investors must adjust their expectations regarding relative returns while acknowledging the continued strength of domestic retail investment and mid-cap momentum.