Markets – India Holds Investor Attention Despite Shifts in Emerging Market Allocations
Markets – India continued to attract investor confidence despite changing global market priorities and adjustments in emerging market benchmarks.
India has maintained its position as an important destination for emerging market investors even as global capital flows increasingly favour technology-driven markets in East Asia. A recent report by Jefferies noted that India’s share in the MSCI Emerging Markets Index has declined to nearly 12 per cent, largely because of the growing dominance of artificial intelligence-linked stocks in countries such as Taiwan and South Korea.
Market observers said that although India has faced pressure from what analysts describe as a “reverse AI trade,” the country has not lost its relevance among global investors. The report pointed out that several Southeast Asian markets are facing a bigger challenge as they risk becoming less significant in benchmark allocations used by international funds.
Strong Rally in Mid-Cap Stocks
One of the key highlights from the report was the strong recovery seen in Indian mid-cap companies. While global investors concentrated on semiconductor and memory-chip manufacturers, Indian mid-cap shares quietly posted notable gains over the past few months.
The Nifty MidCap 100 Index climbed more than 19 per cent from its low recorded on April 2 and later touched a high of 62,094. This performance stood out against the broader market trend and reflected continued domestic participation in equities.
In comparison, the benchmark Nifty 50 Index registered a rise of nearly 10 per cent from its April lows. However, it still remained below the record levels reached earlier in the year. Analysts believe the stronger momentum in mid-cap counters indicates investor preference for growth-oriented domestic businesses rather than only large-cap companies.
Performance Gap Widens Since 2023
The report also highlighted the sharp difference in returns between mid-cap and frontline stocks over a longer period. Since the start of 2023, the Nifty MidCap index has surged by almost 97 per cent, significantly outperforming the Nifty 50, which advanced about 34 per cent during the same period.
This growth came despite substantial foreign investor selling in Indian equities. According to the report, overseas investors sold a net USD 21.1 billion worth of Indian shares so far this year. The figure has already crossed the total outflow recorded during the previous year.
Even with this foreign selling pressure, the mid-cap segment remained relatively stable and continued to draw attention from investors seeking higher growth opportunities. Analysts, however, cautioned that the recent rally has pushed valuations higher, making several stocks appear expensive again.
Domestic Investors Provide Stability
The resilience of Indian equities has been largely supported by strong domestic inflows. Mutual fund investments from retail participants played a major role in offsetting the impact of foreign withdrawals.
Jefferies noted that equity mutual fund inflows accelerated sharply in March, reaching around Rs 500 billion, the highest level in eight months. A significant share of this came through Systematic Investment Plans, commonly known as SIPs, which contributed more than Rs 320 billion during the month.
Apart from mutual funds, pension-related investments also added steady support to the market. The National Pension Scheme reportedly invested nearly USD 1.7 billion every month into equities during the first quarter of 2026.
Global Benchmark Changes Affect Weightings
The report explained that changing investor preferences linked to artificial intelligence and semiconductor growth have altered benchmark allocations across emerging markets. India’s weight in the MSCI Emerging Markets Index has fallen considerably from nearly 19.5 per cent at the beginning of last year.
Meanwhile, Taiwan and South Korea have gained larger shares in the index due to the strong earnings outlook for major chip manufacturers. Companies such as Samsung Electronics and SK Hynix are expected to post combined profits far exceeding those of India’s Nifty 50 companies this year.
As a result, portfolio allocations within Asia-Pacific emerging market strategies have also been revised. India’s exposure was trimmed slightly, while Taiwan and South Korea received increased weightings due to their stronger positioning in the global AI supply chain.