No Indian Stock In MSCI EM Top 10 As AI Rally Reshapes Benchmark

Indian companies have dropped out of the top 10 constituents of the MSCI Emerging Markets (EM) Index for the first time in more than two decades, as a surge in artificial intelligence (AI)-linked stocks lifted semiconductor giants in Taiwan and South Korea.

Analysts tracking the benchmark said this is the first time since at least 2000 that no Indian company featured among the index's 10 largest constituents. The MSCI EM Index serves as a benchmark for passive funds managing more than $700 billion globally and is also widely tracked by active emerging-market investors.

Indian Heavyweights Out

India’s largest constituents in the benchmark, HDFC Bank and Reliance Industries, have slipped to the 11th and 12th positions, respectively. They were ranked seventh and eighth in March. Their individual weights in the index have also fallen below 0.8% following weakness in their share prices this year.

Experts tracking the benchmark said the strong momentum in AI and semiconductor investments globally has reduced the relative standing of Indian companies within the index. They noted that changes in constituent weights often influence both passive and active investment allocations.

AI Winners Gain Ground In Emerging Markets

The shift comes as semiconductor stocks have delivered sharp gains over the past year. HDFC Bank and Reliance Industries shares are down about 26% and 20%, respectively, from their peak levels. In comparison, Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and SK Hynix have surged 48%, 147% and 194%, respectively, over the same period.

The strong rally in AI-linked stocks has increased the dominance of technology-heavy markets within the MSCI EM Index. Taiwan, South Korea and China now account for around 70% of the benchmark. TSMC, Samsung Electronics and SK Hynix together make up nearly 30% of the index.

India’s Weight Falls To Six-Year Low

India’s overall weight in the MSCI EM Index has declined to 10.87%, its lowest level in six years. The country's share is now nearly half of the record level reached in 2024.

Market researchers said India's weighting in emerging-market benchmarks has been trending lower over the past two years despite the continued inclusion of new companies. According to them, the relative outperformance of Taiwan, South Korea and China has attracted a larger share of global capital flows.

India briefly became the largest component of the MSCI EM Investable Market Index (IMI), a broader version of the benchmark, in late 2024. China later regained the top position.

Growing Concentration Raises Risk Concerns

The growing influence of a handful of AI-related stocks has also increased concentration within emerging-market benchmarks. Market experts said the rising weight of a small group of companies has heightened concerns about concentration risk in indices that influence assets worth trillions of dollars globally.

According to analysts, the AI trade has supported benchmark returns and attracted fresh investor inflows. However, they cautioned that the index has become more vulnerable to any reversal in sentiment.

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They said a slowdown in AI-related spending, weaker earnings growth from semiconductor companies or a broader correction in technology valuations could have an outsized effect on benchmark performance and the returns of passive funds linked to the index.

Source:

Business Standard