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India Still Key for EM Investors Despite Lower MSCI Weightage: Jefferies

India remains a critical destination for emerging market investors despite its MSCI weightage dropping to 12%, according to Jefferies. Indian mid-cap stocks have rallied significantly, outperforming the broader market despite record foreign outflows. Domestic equity mutual fund inflows, including SIPs, have provided a crucial cushion against foreign selling. The shift in MSCI weightings favors Korea and Taiwan due to strong semiconductor earnings.

Key Points: India Remains Vital for EM Investors: Jefferies

  • India's MSCI EM weightage dropped to 12% from 19.5%
  • Mid-cap stocks rallied 19.2% since April low
  • Domestic mutual fund inflows hit Rs 500 billion in March
  • Foreign selling reached record USD 21.1 billion year-to-date
3 min read

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

India stays critical for emerging market investors despite MSCI weightage drop to 12%, with mid-cap stocks rallying 19.2% and strong domestic inflows, says Jefferies report.

"If India has been out of favour as the reverse AI trade, at least it has not been reduced to complete benchmark irrelevance for emerging market investors - Jefferies Greed & Fear report"

New Delhi, May 9

India remains a critical destination for emerging market investors, even as it faces a "reverse AI trade" that has impacted its MSCI Emerging Markets Index weightage to 12 per cent, according to a Jefferies Greed & Fear report.

"If India has been out of favour as the reverse AI trade, at least it has not been reduced to complete benchmark irrelevance for emerging market investors, which is the real risk now facing Asean markets," the report stated.

The report highlighted that Indian mid-cap stocks have seen a good rally, outperforming the broader market despite a period of significant foreign capital outflows.

"Meanwhile, amidst the focus on DRAM stocks it would be easy to miss that this quarter has seen a decent rally in Indian mid-cap stocks from the recent intraday low reached on 2 April," the report said.

While global investors focused on semiconductor-driven markets, the report mentioned that the Nifty MidCap 100 Index rose 19.2 per cent from its low on April 2 to reach a peak of 62,094.

The performance of the mid-cap segment sharply diverged from the blue-chip Nifty 50 Index, which gained 9.7 per cent from its April low but stayed 7.8 per cent below the peak it reached in early January.

The report highlighted that since the beginning of 2023, the MidCap index climbed 97 per cent, significantly higher than the 34 per cent gain seen in the Nifty Index. This trend persisted despite "foreigners selling a net USD 21.1 billion of Indian equities year-to-date," a figure that already exceeded the record USD 18.8 billion in net selling recorded throughout last year.

"This mid-cap segment remains the most interesting part of the Indian market to GREED & fear, though the recent rally means the stocks are looking relatively expensive again," the report noted.

The report highlighted that domestic equity mutual fund inflows provided a crucial cushion against foreign selling. These inflows accelerated to Rs 500 billion in March, marking the highest level in eight months. Systematic Investment Plans (SIPs) accounted for Rs 321 billion of that total. Additionally, the National Pension Scheme contributed approximately USD 1.7 billion per month into equities during the first quarter of 2026.

The shift in foreign interest is linked to changing weightings in the MSCI Emerging Markets Index. India's weighting dropped from 19.5 per cent to 11.5 per cent since the start of last year, while the weightings for Korea and Taiwan increased to 20.6 per cent and 25 per cent, respectively.

"Samsung and Hynix are forecast to earn profits totalling W452tn (USUSD 307bn) this year, three times the total forecast profits of USUSD 102bn for India's Nifty 50 universe," the report mentioned.

As a result of these benchmark shifts, adjustments are made to the Asia Pacific ex-Japan relative-return portfolio. The weighting for India is reduced by one percentage point to 12 per cent, while weights for Korea and Taiwan increased to 18 per cent and 21 per cent, respectively.

- ANI

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Reader Comments

K
Kavya N
Interesting that Jefferies calls it "reverse AI trade" for India. The reality is, global money chases whatever narrative is hot—right now it's all about semiconductors in Korea and Taiwan. But India's domestic resilience is unmatched. The NPS and SIP culture is a game-changer. Also, 97% mid-cap returns since 2023? Wow! 😲
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Vikram M
The comparison with ASEAN markets is sobering. At least India still commands a 12% weightage, while Southeast Asian economies risk being ignored entirely. But the elephant in the room is that Samsung and Hynix alone are projected to earn 3x the profits of our entire Nifty 50 universe. That's a painful reality check about where we stand in the global tech race. We need more than just domestic flows—we need actual structural reforms to attract long-term capital.
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Sneha F
My SIP in a mid-cap fund has returned 23% over the past year. While FIIs are running away, smart Indian investors are staying put. The domestic retail participation through SIPs (₹321 billion in March!) is a huge vote of confidence. But I agree with the article—valuations are looking expensive after this rally. Time to be a bit cautious and maybe shift some allocation to large caps. 📈
J
James A
As a foreign investor looking at EM allocations, I find the Indian story compelling but overpriced. The mid-cap rally of 97% since 2023 is impressive, but those gains are already priced in. Meanwhile, Korean and Taiwanese tech stocks offer genuine AI-driven growth at better valuations. India needs to do more to attract global capital beyond just relying on domestic savings.
R

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