The blistering rally in artificial intelligence (AI)-linked stocks has pushed domestic companies out of the top 10 constituents of the widely tracked MSCI Emerging Markets (EM) Index for the first time in more than two decades.
While historical daily constituent data is not publicly available, analysts tracking the benchmark said no Indian company featuring among the top 10 stocks in the MSCI EM Index is a first since at least 2000. The index serves as a benchmark for passive funds managing more than $700 billion globally and is also closely tracked by actively managed EM funds.
India’s largest constituents in the benchmark, HDFC Bank and Reliance Industries (RIL), have slipped to the 11th and 12th positions, respectively, seventh and eighth positions in March. Their individual weights in the index have fallen below 0.8 per cent following weakness in their share prices this year.
“Relatively strong momentum in AI and semiconductor investment themes elsewhere has contributed to domestic companies losing their place among the top 10. Reduced weights have implications for both passive and active investment strategies, as portfolio managers benchmark allocations to index weights,” said Sriram Velayudhan, senior vice-president, IIFL Capital Services.
Currently, the MSCI EM index has more than 1,200 stocks, with domestic companies making up for about a fifth.
“India’s weight in emerging-market indices has declined over the past two years despite continued additions of new companies. This is largely due to the relative outperformance of Taiwan, South Korea and China, which are benefiting from strong AI- and technology-led rallies. These markets are attracting a disproportionate share of global capital,” said Abhilash Pagaria, head of alternative and quantitative research at Nuvama.
Shares of HDFC Bank and RIL are down about 26 per cent and 20 per cent, respectively, from their peaks. In contrast, AI-linked heavyweights such as Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and SK Hynix have surged 48 per cent, 147 per cent and 194 per cent, respectively, over the same period.
India’s overall weight in the MSCI EM Index has slipped to a fresh six-year low of 10.87 per cent, nearly half the record level reached in 2024. The country had briefly emerged as the largest component of an offshoot MSCI EM Investable Market Index (IMI) in late 2024 before China reclaimed the top position.
The AI boom stocks have made EM indices increasingly concentrated. Taiwan, South Korea and China together now account for roughly 70 per cent of the benchmark, while AI beneficiaries TSMC, Samsung Electronics and SK Hynix collectively make up nearly 30 per cent.
Experts said the growing dominance of a few stocks has heightened concerns about concentration risk in one of the EM benchmarks, which arguably have a bearing on assets in trillions.
“While the AI trade has fuelled returns and attracted fresh inflows, it has also increased the index’s vulnerability to a reversal in sentiment. Any slowdown in AI-related spending, weaker-than-expected earnings growth or a broader derating of semiconductor stocks could have an outsized impact on benchmark performance and passive fund returns,” said an analyst requesting anonymity.
