Decoded: Why India Lost Its Top 10-Spot In The MSCI EM Index For The First Time In 26 Years

In June, India fell out of the top ten constituents of the MSCI Emerging Markets Index. Notably, this is the first time since the year 2000 that India has fallen out of the top-10 stocks which are a part of the MSCI Emerging Markets Index.

According to the MSCI factsheet, India’s aggregate footprint within the index fell to a six-year low of 10.87 per cent. Notably, in late 2024, India had become the single largest country component in the broader MSCI Emerging Markets Investable Market Index. Thus, the current decline indicates a shift in institutional money moving out of India.

How the Domestic Heavyweights Slipped

The two largest Indian constituents in the index in terms of weightage, HDFC Bank and Reliance Industries Ltd, have slid to the eleventh and twelfth positions, respectively, according to the holdings disclosure of EEM Equity iShares MSCI Emerging Markets ETF, which directly tracks the index.

Prior to the rebalancing, which took place in May, HDFC Bank and Reliance held the seventh and eighth positions. It is likely that the weakness in the share prices led to their individual weights dropping below 0.8 per cent each.

What Caused The Drop In Weightage

The weightage of HDFC Bank slipped to 0.71 per cent, and the weightage of Reliance slipped to 0.66 per cent. Notably, both HDFC and Reliance shares have slipped significantly from their recent peaks. As of June 11, HDFC is trading at Rs 745 per share, down 27 per cent from its 52-week high of Rs 1020.50 per share, which it hit on October 23, 2025.

On the other hand, Reliance shares are trading at Rs 1265.20 per share, down by 21.50 per cent compared to its 52-week high of Rs 1611.80 per share hit on January 5, 2026.

However, the shift was primarily led by technological developments in the past two years rather than systemic failures. According to Morgan Stanley’s 2026 Midyear Economic Outlook, capital spending has entered an industrial super-cycle, tracking toward $800 billion in 2026, which in turn has led to aggressive asset reallocation, which has concentrated global liquidity into a cluster of East Asian tech hardware suppliers.

The thematic push for these stocks has added significantly to the market capitalisations of tech firms in Taiwan and South Korea , like Taiwan Semiconductor Manufacturing Company, Samsung Electronics, and SK Hynix. Notably, these stocks now command nearly 30 per cent of the index.

On the other hand, India's stock benchmarks do not have any direct hardware AI alternatives  and tend to remain concentrated in sectors like banking and oil processing. Apart from a shift in institutional flows towards direct AI-plays, external headwinds like a rise in crude oil prices past the $100 mark and escalating geopolitical tensions between Israel and Iran added to the reasons behind the fall in weightage.

What India is Doing to Fix Things

The Centre, along with the Reserve Bank of India have taken several steps in order to curb the flight of capital from the domestic market and stabilise the financial system, protect foreign exchange reserves.

The government increased import duties on gold and silver to 15 per cent. Simultaneously, an emergency government ordinance exempted foreign portfolio investors from paying income tax on interest and capital gains earned from government securities.

These tax breaks can potentially ease India's inclusion into the Bloomberg Global Aggregate Index, which in turn could trigger up to $25 billion in passive inflows. The central bank has also introduced a foreign currency deposit window targeting $20 billion.