In a first, India overtakes China in MSCI equities index with strong economic growth and money flow

India has overtaken China for the first time ever in a key MSCI equities index, bolstered by steady economic growth and strong flows.

India’s weight in the MSCI investible large-, mid- and small-cap index has risen to 2.35%, greater than China’s weight of 2.24%, Morgan Stanley said in a note on Tuesday.

“India will continue to gain share due to market outperformance, new issuances and liquidity improvements,” analysts led by Jonathan Garner of Morgan Stanley said.

India’s nominal gross domestic product growth rate is running in the low teens, more than thrice the economic growth in China, generating a “profound divergence in earnings growth environment”, according to the brokerage.

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China’s weight on the index had peaked in early 2021.

Earlier this month, Morgan Stanley forecast that India will overtake China in the MSCI Emerging Markets index as India’s stock market rally was “only past the halfway mark”.

India’s rising weightage in the MSCI indexes will bring additional inflows, analysts said.

India is among the best-performing markets this year globally, with its benchmark indexes NSE Nifty 50 and S&P BSE Sensex up 17% and 15%, respectively.

China’s Shanghai Composite index is down about 9% this year amid concerns over the economy and the property sector.