Is investors’ love affair with India ending?

In July 2024, India’s weight in the MSCI Emerging Markets Index, a leading gauge of stocks in developing economies, hit a record high of 19.99 per cent. At the time, this was less than three percentage points below China’s weight, which at one point was as high as 43 per cent.Between 2022 and 2024, India was the darling of emerging market equity investors. The combination of the country’s fast-growing economy, strong corporate earnings, the Covid-19 pandemic-induced boom in retail trading and the dramatic deterioration in sentiment towards China caused investors to pile into Indian shares.In a report in October 2022, Morgan Stanley said India had “the conditions in place for an economic boom fuelled by offshoring, investment in manufacturing, the energy transition and the country’s advanced digital infrastructure. These drivers will make it the world’s third-largest economy and stock market by the end of the decade”.