India's MSCI EM Index Weight Falls to Near COVID-19 Lows as Investment Flows Shift

India's Weight in MSCI Emerging Markets Index Slips to Near Covid-Era Lows

India's share in the MSCI Emerging Markets Index has fallen to fourth position from its earlier second rank over the past year, as global investor flows shifted toward AI and semiconductor-driven markets such as Taiwan and South Korea.

According to recent data, India's weight in the index has declined from nearly 21 percent in September 2024 to around 12 percent by May 2026, compared with about 9 percent in 2020. The reduction has been largely concentrated in BFSI, IT and FMCG sectors, which have significant representation in global indices. Some discretionary portfolios have adopted a short India IT and long Korea, Taiwan or China technology positioning.

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Taiwan has emerged as the largest constituent in the index with a weight of around 25 percent, overtaking China. China and South Korea currently hold weights of about 19 percent each. Taiwan's weight has risen sharply from 17 percent in early 2025 to current 25 percent, while South Korea's share has increased from 9 percent at the end of 2024 to 19 percent. In contrast, China's weight has declined from 28 percent to 19 percent over the same period.

The rise in Taiwan and South Korea has been driven by strong demand for artificial intelligence and semiconductor-related companies such as TSMC, Samsung Electronics and SK Hynix, which have expanded globally. In comparison, Indian markets remain dominated by financials, consumer staples and IT services, with limited exposure to AI hardware or platform-driven businesses.

Indian equities have seen volatility since September 2024, with benchmark indices Sensex and Nifty 50 declining 17.5 percent and 16 percent respectively in dollar terms. Over the same period, China's Shanghai Composite has risen 50 percent, Taiwan's market has gained 77 percent and South Korea's Kospi has surged 124 percent. The MSCI EM index has gained 46 percent, while MSCI India has declined 16 percent.

Market volatility in India has been driven by elevated valuations, continued foreign investor selling, subdued earnings growth and a weakening rupee. More recently, geopolitical tensions including trade-related uncertainties and the conflict involving the United States, Iran and Israel have weighed on sentiment. Crude oil prices rising to around $114 per barrel have further raised concerns over inflation and growth, adding to the pressure on foreign flows.

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