The Indian stock market has steadily climbed in the global financial ecosystem and reached a new milestone recently. In July 2025, India’s weight in the MSCI Emerging Markets (EM) Index rose to 18.2%. This makes it the second-largest constituent after China, which holds a 23.3% share. This is India’s highest-ever weight in the index and more than double what it was just five years ago. This may sound like a technical detail for fund managers, but it has big implications. It affects retail, institutional, and global investors, especially those exploring long-term growth in the Indian stock market.
So, what does this change in index weight signify, and how can investors use this shift to their advantage?
Why India’s Growing Weight in the EM Index Matters
The MSCI EM Index is one of the most tracked benchmarks in the world for emerging markets. It influences the asset allocation of over $1.8 trillion in global passive and active funds. When a country’s weight in the index rises, global funds that replicate the index or follow its benchmarks are compelled to increase their exposure to that country’s equities. This often leads to automatic capital inflows, especially from passive funds and exchange-traded funds (ETFs).
For the Indian stock market, this means that billions of dollars in fresh foreign portfolio investment (FPI) could flow into Indian markets simply because of its increased index weight. According to data from CLSA and Morgan Stanley, India could receive an additional $3 – 4 billion in passive inflows over the next few months due to this shift alone.
More importantly, this inflow comes on top of an already strong FPI trend. In FY 2024 – 25, net FPI into Indian equities totaled $32.1 billion up significantly from $5 billion in FY 2022 – 23. It’s not just the numbers that are rising; it’s global confidence in India’s growth trajectory, corporate earnings, and macroeconomic resilience.
The Big Shift: India Replacing China?
Until recently, China was the undisputed heavyweight in the EM universe. But the dynamics are shifting. In 2020, China commanded nearly 40% of the MSCI EM Index. Today, that share has dropped to 23.3%. India, on the other hand, has grown from 8% in 2018 to 18.2% today.
The reasons are manifold. China’s economy is grappling with slower growth, demographic headwinds, and regulatory unpredictability, especially in sectors like tech, education, and property. In contrast, the Indian stock market benefits from political stability, a pro-reform government, a young population, and consistent GDP growth.
India’s GDP grew at 7.6% in FY 2024–25, making it the fastest-growing major economy. This economic expansion has been broad-based driven by consumption, manufacturing, services, and infrastructure. The government’s Production Linked Incentive (PLI) schemes, energy transition focus, and digital transformation efforts have strengthened the country’s structural growth narrative.
Morgan Stanley has projected that India could surpass China in EM index weight by 2028 if current trends persist. That would mark a seismic shift in how the world views and invests in emerging markets.
What’s Driving India’s Appeal?
India’s rise in the EM Index reflects more than just growth figures—it reflects market maturity. The Indian stock market is among the most diversified and liquid in the developing world. The regulatory framework is robust, the investor base is expanding, and technological advancements in trading and compliance mechanisms have made Indian equities more accessible than ever.
Another factor is sectoral diversification. Earlier, Indian markets were known primarily for their IT and banking stocks. Today, the picture is broader.
- The financial sector remains strong with companies like HDFC Bank and ICICI Bank continuing to grow.
- Industrials and capital goods are seeing renewed investor interest as government infrastructure spending ramps up.
- Consumer-facing companies in auto, FMCG, and retail are benefiting from rising incomes and consumption.
- Green energy and ESG-compliant sectors are also gaining traction as India ramps up its renewable energy capacity.
- Even the tech startup ecosystem is making waves with listed players like Zomato and Nykaa becoming more relevant in portfolio allocations.
For investors, this means exposure to India is no longer just about a few sector it offers a more balanced and diversified opportunity.
Risks and Volatility – What to Watch
While the long-term picture looks promising, investors must remain cautious of short-term volatility. India’s equity market is currently trading at a trailing P/E ratio of 22x, higher than its long-term average. High valuations always carry correction risks, especially if there’s a global risk-off event.
Geopolitical risks, such as border tensions or global trade disruptions, could also affect sentiment. Additionally, India remains dependent on foreign capital to a certain extent. Any reversal in global liquidity, such as interest rate hikes by the US Federal Reserve, can lead to FPI outflows and market corrections.
That said, the structural story remains intact. Over the next decade, India’s demographic dividend, digital infrastructure, and policy reforms are likely to play a major role in keeping the growth engine running.
What Investors Should Do
For domestic investors, now is a strategic time to stay invested in Indian equities with a long-term mindset. With increased FII activity and with the Indian stock market gaining weight in global indices, large-cap and diversified equity exposure through professional stock advisory services can help investors ride this wave confidently.
NRIs and global investors seeking to capitalize on India’s growth can allocate capital through India-focused equity portfolios, curated by SEBI-registered investment advisors. As India becomes a core focus in emerging market allocations, personalized stock selection is key to outperformance — far more effective than passive ETF bets.
Institutional and high-net-worth investors should also reevaluate their emerging market allocations. With themes like infrastructure, capex-led sectors, banking, and consumption driving momentum, overweighting India via a data-backed stock advisory platform can be a game-changer in long-term portfolio performance.
Conclusion
As India’s importance in the Global Emerging Markets (EM) Index continues to grow, it sends a strong signal of long-term confidence in India’s equity story. Whether you are an NRI investor looking for strategic EM exposure or a seasoned wealth builder seeking direct stock investments, this shift presents a rare opportunity.
That’s where Jarvis Prime comes in — a premium AI-powered stock advisory service designed for HNIs and global investors. Jarvis Prime builds a curated equity portfolio tailored to your risk profile, growth expectations, and market cycles.
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