MSCI’s quarterly rebalancing of its global benchmark indices has long attracted the interest of global investors, triggering inflows and outflows across markets. For example, its latest rejig – which came into effect on Friday – triggered a sharp sell-off in the Indian stock markets late in the session, with benchmark indices ending 1.5% down from Thursday.“Indian Equity Market has witnessed massive activity from the FPIs on the day of MSCI rebalancing,” Nilesh Shah, Managing Director at Kotak Mahindra Asset Management Co, posted on X on Friday, adding that Foreign Portfolio Investors accounted for around 69% of the total turnover of Rs 2.87 lakh crore on National Stock Exchange.Also Read | Why India is losing weight in the MSCI Emerging Markets Index amid the global AI boomThe indices provided by New York-based MSCI, formerly Morgan Stanley Capital International, are keenly eyed by investors across the world because they dictate the flow of capital, especially passive funds that closely track the weights assigned to regions, countries, and companies. Friday’s rebalancing saw India’s weight in the Global Standard index edge down to 12.3% from 12.4%.Announced earlier in the month on May 13, while the rebalancing saw the number of Indian companies in the index remain unchanged at 165, four were removed (Hyundai Motor India, Jubilant Foodworks, Kalyan Jewellers, and Rail Vikas Nigam) and four others were added in their place: Federal Bank, Multi Commodity Exchange of India, National Aluminium, and Indian Bank.Meanwhile, India’s weight in the Emerging Markets (EM) index has been on a downward trend since peaking around 21% in September 2024 and now stands at 11.94%, behind the likes of Taiwan (24.84%), China (23.05%), and South Korea (18.69%). And these rankings do a good job of telling the entire India story: it has no AI play, while its Asian rivals are leading the world on the back of eye-popping increases in key company’s share prices. In fact, only a few days ago, Taiwan overtook India and became the fifth most valuable stock market in the world in terms of market capitalisation.Also Read | Explained Interview | ‘India must identify its market, be pragmatic in manufacturing semiconductor chips’“The catalyst? AI. Specifically, the scale of AI-driven demand for semiconductors,” MSCI noted on Wednesday. “Taiwan’s semiconductor industry accounts for 16.2% of the index on its own, contributing to IT’s surge to nearly 37% of EM, up from 31.8% just one month earlier. For investors, broad EM exposure today is structurally different than a year ago, with more technology, more semiconductors and a more direct stake in the global AI build-out,” it added.Leading the charge for Taiwan has been Taiwan Semiconductor Manufacturing Co, the world’s largest chipmaker, whose share price has more than doubled in the last one year. Just how dominant is TSMC? One of only two non-US entities in the world’s top-10 most valuable companies – the other being Saudi Aramco – TSMC makes up more than 40% of Taiwan’s benchmark Taiex index. At 14.21%, TSMC on its own has a greater weight in MSCI’s EM index than India.Story continues below this adIt’s not just Taiwan that has benefitted from the AI boom. A day after Taiwan overtook India in the world’s largest stock markets, South Korean semiconductor manufacturer SK Hynix saw its market capitalisation top $1 trillion. This was just a few days after fellow Korean firm Samsung also crossed the $1 trillion mark. Together, the market cap of Samsung and SK Hynix is almost half of the Kospi index. These two companies are also the second and third biggest constituents of the MSCI EM index, accounting for 10.08% of it.Also Read | ExplainSpeaking: To defend, or not to defend (the rupee), that is the questionThe Indian companies with the highest weight are HDFC Bank and Reliance Industries, both at 0.79%.The absence of an AI play in India was earlier viewed as a contrarian strategy. Now, it’s a glaring weakness. And, in conjunction with the rupee’s fall, it’s showing up in how FPIs are behaving: so far in 2026, they have pulled out $24.1 billion from Indian stock markets. This is on top of having pulled out $18.9 billion in 2025. In 2024, FPIs’ net bought a mere $124 million of Indian shares. As such, since the start of 2024, FPIs have net sold $43 billion of Indian equity.