India outranks China as biggest weight in MSCI EM Investable Market Index

Emerging market investments: For the first time, India beat out China to become the biggest member of the MSCI Emerging Markets Investable Market Index on September 4. The MSCI EM IMI includes large, mid and small-cap representations from 24 emerging market economies. India is all set to pip China even in the wider MSCI Emerging Markets Index as the biggest weight.

A report by international brokerage Morgan Stanley discussed whether this is good or bad news for Indian equities. For now, foreign investors find their interest in the same set of stocks increasingly being competed by domestic participants, which makes pipeline expansion critical to attracting higher foreign investment, the brokerage firm noted. 

In a recent note, Morgan Stanley discussed the possibility that India's rising weight in the index reflects either market exuberance or more fundamental factors such as improving free float and rising relative earnings of Indian companies. 

While the firm acknowledges several potential triggers for market correction, it does not expect any of these to stop the ongoing bull run. As a matter of fact, any correction might lead to the capital on the sidelines flowing into the market and make such pullbacks shallow.

The brokerage also continues to remain bullish on large private banks, particularly on attractive valuations. Morgan Stanley also feels India's weight in the MSCI EM index will increase further before stabilisation.