India Inc exits MSCI EM top 10 as AI-driven stocks dominate benchmark
HDFC Bank and Reliance Industries have fallen out of the top 10 constituents of the MSCI Emerging Markets Index for the first time in over two decades, as AI-driven stocks in Taiwan, South Korea, and China surge. India’s weight in the index has dropped to a six-year low of 10.87%, while AI-linked stocks like TSMC, Samsung, and SK Hynix now dominate, collectively accounting for nearly 30% of the benchmark.
India’s two largest companies, HDFC Bank and Reliance Industries, have exited the top 10 constituents of the MSCI Emerging Markets (EM) Index for the first time since at least 2000. The shift reflects a surge in AI and semiconductor-linked stocks in Taiwan, South Korea, and China, which have attracted significant global capital inflows. As of now, HDFC Bank and Reliance Industries rank 11th and 12th, respectively, after their share prices declined this year, reducing their index weights below 0.8%. Their combined drop follows a broader trend where India’s representation in the MSCI EM Index has fallen to 10.87%, the lowest in six years. The country’s peak weight of nearly 20% in 2024 has halved due to outperformance in AI-driven markets. Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics, and SK Hynix have surged 48%, 147%, and 194% year-to-date, while HDFC Bank and Reliance Industries have declined 26% and 20%, respectively. These gains have concentrated the MSCI EM Index, with Taiwan, South Korea, and China now accounting for roughly 70% of its composition. Analysts warn that the index’s growing reliance on AI stocks increases vulnerability to market reversals. A slowdown in AI spending or weaker semiconductor earnings could disproportionately impact passive fund returns tied to the benchmark. India’s declining weight in emerging-market indices underscores the challenge of competing with technology-driven growth in Asia’s AI hubs. The MSCI EM Index, tracking over $700 billion in global passive funds, now reflects a stark shift in investor priorities. While India remains a key emerging market, its companies are being overshadowed by the rapid expansion of AI-related industries in neighboring economies.
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