Summary of this article
TSMC has widened the gap with India in MSCI-EM index
Rise in TSMC weightage is due to AI rally in global markets
Taiwan Semiconductor Manufacturing (TSMC) has increased its lead over India in the widely tracked MSCI Emerging Markets (EM) index, underlining how the global artificial intelligence (AI) rally is reshaping capital flows across emerging markets. According to the latest MSCI factsheet, TSMC alone now commands a 14.20 per cent weight in the MSCI EM index, surpassing India’s country weight of 11.94 per cent.
The development marks a sharp shift in the emerging market investment landscape, where AI-linked semiconductor companies are increasingly attracting investor attention. TSMC had first overtaken India in February after a steep correction in Indian equities. Since then, enthusiasm around AI infrastructure and semiconductor demand has further boosted the Taiwanese chipmaker’s influence in global indices.
The rally has also helped Taiwan emerge as the single-largest country in the MSCI EM index with a weight of 24.84 per cent, overtaking China and reshaping broader index hierarchy. Analysts have attributed the surge to strong gains in Taiwanese equities, especially TSMC, which has become the central proxy for the global AI trade. Taiwan’s benchmark Taiex index and TSMC shares have rallied sharply over the past year amid sustained optimism over AI spending and chip demand.
Meanwhile, India has moved in the opposite direction. The country’s weight in the MSCI EM index has dropped to its lowest level in more than six years after touching nearly 20 per cent in 2024. The decline was due to the underperformance in Indian equities relative to other emerging markets. Foreign institutional investors (FIIs) have also turned more selective on India due to expensive valuations and comparatively lower exposure to the AI hardware and semiconductor sector.
Global brokerages have increasingly favoured Taiwan and South Korea, citing their deeper integration into the global AI supply chain and relatively attractive valuations. India, despite its strong domestic consumption story, has seen several global investors shift to an “underweight” stance amid concerns over earnings growth and elevated stock prices.
The growing dominance of TSMC has also revived concerns about concentration risk within the MSCI EM benchmark. Asset managers have pointed out that the index is becoming increasingly dependent on a handful of technology companies. The top 10 constituents now account for nearly 35 per cent of the benchmark, raising questions over diversification for passive investors tracking emerging markets.
Despite the decline in India’s overall weight, Indian companies, such as HDFC Bank and Reliance Industries continued to remain among the top constituents of the MSCI EM index, though with significantly smaller individual weights compared to TSMC.
FAQs
What is the MSCI Emerging Markets Index?
The MSCI Emerging Markets (EM) Index is a global benchmark that tracks large- and mid-cap companies across emerging market economies, such as India, China, Taiwan, South Korea and Brazil.How does India’s weight in the MSCI EM index matter?
India’s weight determines how much money passive global funds tracking the index will allocate to Indian stocks. A higher weight will attract larger passive foreign inflows into Indian markets.Which Indian sectors dominate the MSCI EM index?
India’s representation in the MSCI EM index is largely led by sectors, such as banks, financial services, IT services, among others.
