India has slipped into unfamiliar territory in global equity markets. For the first time in more than two decades, no Indian company ranks among the top 10 constituents of the MSCI Emerging Markets (EM) Index, a closely watched benchmark that influences the allocation of hundreds of billions of dollars across developing economies.
The shift highlights how the global surge in artificial intelligence (AI) and semiconductor-related stocks is redrawing investment flows, strengthening the market positions of technology-heavy economies such as Taiwan, South Korea and China while reducing India’s relative influence within one of the world’s most important emerging-market benchmarks.
India’s two largest representatives in the index, HDFC Bank and Reliance Industries, have fallen to the 11th and 12th positions, respectively, after previously occupying seventh and eighth spots earlier this year. Their individual weightings have dropped below 0.8%, reflecting weaker stock performance compared with AI-driven peers elsewhere in Asia.
At the same time, India’s overall weighting in the MSCI EM Index has declined to 10.87%, its lowest level in six years and roughly half the peak reached in 2024.
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AI Rally Drives Shift in Emerging Market Leadership
The primary force behind India’s declining representation is the extraordinary rally in AI-linked and semiconductor stocks.
Over the past year, global investors have increasingly concentrated capital in companies viewed as direct beneficiaries of the AI revolution. This has significantly boosted the market value of major technology firms across Asia.
While shares of HDFC Bank and Reliance Industries have fallen approximately 26% and 20%, respectively, from their highs, semiconductor leaders have posted dramatic gains. Taiwan Semiconductor Manufacturing Company (TSMC) has climbed around 48%, Samsung Electronics has surged roughly 147%, and SK Hynix has advanced nearly 194% during the same period.
The result has been a substantial reordering of the MSCI EM Index. Taiwan, South Korea and China now collectively account for roughly 70% of the benchmark, while TSMC, Samsung Electronics and SK Hynix alone represent close to 30% of the index.
Market analysts say the divergence reflects investors’ growing preference for sectors directly linked to AI infrastructure, data centers, advanced chips and cloud computing.
Why MSCI Weightings Matter
Changes in benchmark weightings are more than symbolic rankings.
The MSCI Emerging Markets Index serves as a reference point for passive investment vehicles, including exchange-traded funds and index funds, that collectively manage more than $700 billion. Total assets benchmarked against MSCI emerging-market indices exceed $1.8 trillion when actively managed funds are included.
When a country’s weighting declines, passive funds tracking the benchmark typically reduce exposure during periodic rebalancing exercises. These adjustments are rule-based rather than discretionary, but they can still influence capital flows into domestic markets.
The impact extends to active fund managers as well. Lower benchmark weightings make it easier for investors to maintain reduced exposure to a country without appearing significantly underweight relative to the index. As a result, India’s shrinking share could affect future portfolio allocation decisions across global emerging-market funds.
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Pressure Builds on India’s Financial Markets
The decline in MSCI representation comes at a time when India’s financial markets are facing additional headwinds.
The Indian rupee recently recorded its steepest single-day decline in a month, falling 77 paise against the US dollar. The currency has weakened steadily over the past two years, pressured by rising global uncertainty and elevated energy prices.
Crude oil prices have also surged following renewed tensions in the Middle East, particularly after fresh exchanges between Iran and Israel. For India, one of the world’s largest oil importers, higher energy costs translate into a larger import bill and increased pressure on the current account deficit.
Domestic investor sentiment has also softened. Equity mutual fund inflows fell sharply in May, reflecting increased caution amid market volatility and concerns over rising oil prices.
The combination of external vulnerabilities and weaker capital inflows has intensified concerns about maintaining stable foreign investment flows into the country.
Government Moves to Attract Foreign Capital
In response to these pressures, Indian authorities have introduced a series of measures designed to strengthen capital inflows and support financial stability.
The government recently announced tax-related reforms aimed at making investments in government securities more attractive to foreign portfolio investors. Authorities have also expanded the range of bonds accessible to overseas investors and introduced a foreign-currency deposit facility designed to encourage additional overseas funding.
These reforms come as India seeks inclusion in major global bond benchmarks, particularly Bloomberg’s Global Aggregate Index. Analysts estimate that successful inclusion could attract approximately $25 billion in passive inflows from international investors.
However, questions remain regarding whether infrastructure and settlement-related concerns previously highlighted by index providers have been fully addressed.
Expert Analysis / What This Means
India’s exit from the MSCI EM top 10 is less a verdict on the country’s economic fundamentals and more a reflection of the extraordinary global concentration of capital around AI-related investments.
For investors, the development could mean reduced passive inflows into Indian equities over time, particularly if benchmark weightings continue to decline. It also highlights how rapidly global investment narratives can reshape market leadership.
For policymakers, the shift underscores the importance of attracting long-term foreign capital through structural reforms, deeper financial markets and improved investment accessibility.
The broader concern is that emerging-market benchmarks are becoming increasingly concentrated in a handful of technology stocks. While this concentration has boosted returns during the AI boom, it also increases vulnerability if sentiment toward semiconductor and AI sectors weakens.
India’s diversified economy may ultimately prove more resilient than markets currently suggest, but restoring a larger share of global investment benchmarks could require stronger corporate earnings growth, renewed foreign investor confidence and greater participation in sectors driving the next phase of technological expansion.
Industry / Market Impact
The changing composition of the MSCI EM Index reflects a broader transformation occurring across global markets.
Technology and semiconductor companies have become dominant drivers of emerging-market performance, attracting a disproportionate share of institutional capital. This trend has widened the valuation gap between technology-centric economies and markets driven by financial services, energy and domestic consumption.
For Indian corporations, the development could increase pressure to deliver stronger earnings growth and improve competitiveness in high-growth sectors linked to digital infrastructure and advanced technology.
What Happens Next
Investors will closely monitor several developments in the coming months.
The trajectory of AI-related stocks remains critical. Any slowdown in semiconductor demand, weaker earnings or reduced enthusiasm for AI investments could trigger a rebalancing of capital toward other emerging markets.
At the same time, India’s efforts to secure inclusion in major global bond indices may become increasingly important as policymakers seek alternative sources of foreign capital.
Market participants will also watch the performance of heavyweight Indian stocks such as HDFC Bank and Reliance Industries, whose recovery could help stabilize India’s standing within global benchmarks.
For now, the country’s absence from the MSCI EM top 10 marks a significant milestone, illustrating how rapidly global investment trends can reshape the hierarchy of emerging markets.