Foreign flows into India have dried up in recent times, coinciding with India’s falling weightage on the EM index. (Express File)MSCI’s quarterly rebalancing of its global benchmark indices has long attracted the interest of global investors, triggering massive inflows and outflows across markets. For example, its latest rejig, which came into effect on Friday, triggered a sharp late sell-off in the Indian stock markets, with benchmark indices slumping 1.5% and erasing about 5.7 lakh crore in investor wealth in the process.Formerly Morgan Stanley Capital International, the New York-based company provides benchmark indices across a host of asset classes, making it easier for global investors to pick and compare the top assets from various markets. It was among the earliest benchmarks for global investors, rising to prominence in the 1980s, before the likes of FTSE and Citibank also came up with similar indices.MCSI’s rebalancing of its benchmark indices is also important in determining the global flow of capital and in understanding the importance of each market in the global context. For example, after the latest slate of changes, India’s weightage on the Global Standard index fell to 12.3% from 12.4%.India’s weightage on MSCI’s Emerging Markets (EM) index has been on a downward trend since reportedly touching a peak of around 21-22% in September 2024, falling to 11.9% and nearing a low of around 9% seen during Covid. This means India, which once had the second-largest weight on the index, has now slipped to the fourth spot, according to MSCI.This rapid fall in weightage has come as the Indian market has been plagued by challenges such as slowing earnings growth, expensive valuations, lower returns, and a lack of AI-related opportunities compared to other emerging markets. Emerging markets usually attract huge capital from global investors due to the potential for high returns, and weightage in the emerging markets index is important as it dictates the flow of global capital.Also in Explained | India’s oil shock could have been much worse — but for China“The peak came in September 2024, when the Indian market was seeing a bull run, with companies delivering double-digit earnings growth consistently. However, that was also when valuations became too stretched, and this sort of earnings growth leading to these extreme valuations was not sustainable,” according to a research analyst at a domestic fund house. “The subsequent correction, alongside factors such as lack of AI and geopolitical issues, has contributed to the Indian equity market underperforming, thus leading to now around 12% weightage on the EM index.”Foreign flows into India have dried up recently, coinciding with India’s falling weightage on the EM index. Foreign institutional investors have pulled out $23.3 billion from the Indian capital markets so far in 2026, having pulled out $11.8 billion the previous year. In fact, the last time the country saw positive foreign flows was in 2024 ($19.9 billion), coinciding with when India’s weight on the index was at record highs.Story continues below this adGlobal investors have also shifted their focus to markets that offer significant AI play, with the sector earmarked to be the next big thing globally. Countries such as South Korea, Japan, the US, and Taiwan have attracted significant foreign capital in recent times, which has seen these stock markets booming.In fact, this has led Taiwan to surpass China to secure the biggest weight on the EM index at 24.8%. The South Korean market has the second-highest weight on the index. So far in 2026, while these two markets have gained 54-101%, the Indian markets are among the worst-performing among the EMs, falling 10-12%. TSCM, the world’s largest semiconductor manufacturer, accounts for over 40% of Taiwan’s benchmark TAIEX index, showing how much capital AI-related stocks have been attracting.NewsletterFollow our daily newsletter so you never miss anything important. On Wednesday, we answer readers' questions.SubscribeIn fact, Taiwan recently became the 5th most valuable stock market in the world in terms of market capitalisation, overtaking India in the process. The US, China, Japan, and Hong Kong form the rest of the top 5, according to Bloomberg. These are all markets that are considered ahead of India on the AI curve, underscoring the importance that global investors are putting on the AI wave.