India Drops Out of MSCI EM Top 10 for the First Time in 26 Years

For the first time since at least 2000, no Indian company ranks in the top 10 of the MSCI Emerging Markets Index. HDFC Bank and Reliance Industries have slipped to the 11th and 12th positions, pushing India’s country weight to 10.87%, a six-year low.

Behind the move sits a global rotation into AI and semiconductor stocks that has lifted Taiwan, South Korea, and China to roughly 70% of the benchmark, while India’s structural growth story, by most readings, remains in place. Foreign flows are thinning, crude is hovering around $100 a barrel, and a three-part policy fix landed in the same week. The mechanics of the index, not any verdict on Indian equities, did most of the damage.

India Falls Out of MSCI Emerging Markets Top 10 for the First Time in 26 Years

HDFC Bank and Reliance Industries, the two heaviest Indian names in the index, fell to 11th and 12th from 7th and 8th in March. Each now carries a weight of 0.79%.

At the country level, the MSCI EM Index assigns India 10.87%, roughly half the record it touched in 2024, when the country briefly emerged as the largest component of the MSCI EM Investable Market Index before China reclaimed the top position. By Business Standard’s count, no Indian company has held a top-10 slot in the MSCI EM Index for at least 26 years. The benchmark, served by MSCI, dictates how trillions of dollars in passive and active emerging-markets capital are allocated to developing economies. The instruction reaches every fund mandated to mirror the index, in every currency, in every quarter.

Behind the reshuffle sits a familiar story. AI-linked heavyweights have surged while the Indian heavyweights have pulled back. The 10.87% weight is the country-level expression of that gap; the company-level falls are its symptoms.

• 10.87% – India’s MSCI EM weight, a six-year low
• 0.79% – HDFC Bank’s and Reliance’s individual weight each
• $1.8 trillion – total assets benchmarked to MSCI’s emerging-market indexes

The AI Trade That Pushed India Over the Edge

The driver is relative performance. Shares of HDFC Bank and Reliance are down about 26% and 20% respectively from their peaks. Over the same stretch, Taiwan Semiconductor Manufacturing Company has risen 48%, Samsung Electronics 147%, and SK Hynix 194%. The MSCI EM Index does not punish India for weakness so much as it rewards markets where the heaviest names are moving up fastest.

“Relatively strong momentum in AI and semiconductor investment themes elsewhere has contributed to domestic companies losing their place among the top 10,” Sriram Velayudhan, senior vice-president at IIFL Capital Services, told Business Standard. Abhilash Pagaria, head of alternative and quantitative research at Nuvama, called it a story of relative outperformance: Taiwan, South Korea, and China have absorbed a disproportionate share of global capital on the back of AI-led rallies. The AI theme has concentrated the benchmark; six of the top 10 slots are information-technology companies, and three countries together now account for roughly 70% of the index.

What a Benchmark Weight Actually Moves

The MSCI EM Index is an instruction, not a recommendation. Funds whose mandates require them to mirror the benchmark must reduce Indian holdings mechanically at scheduled quarterly rebalancings; the live Emerging Markets Index country weights carry the figures that drive those flows.

According to a Business Standard report, passive funds tracking the MSCI EM Index manage more than $700 billion in assets. MSCI data, cited by Hindustan Times, puts total assets benchmarked to the firm’s emerging-market indexes at more than $1.8 trillion, including active funds that measure themselves against the same benchmark. When India’s country weight falls, passive vehicles must reduce their holdings proportionally at each rebalancing window. The trigger is a formula, not a fund manager’s view of India’s prospects.

The effect on actively managed funds is less mechanical. An active manager who wants to hold less India than the index now has a smaller gap to defend to clients. The country becomes easier to underweight without it reading as a meaningful divergence from the benchmark.

The shift from a 2024 record to 10.87% today sits inside a benchmark whose rebalancings move billions of dollars in a single session. By construction, that rebalancing concentrates selling pressure on India whenever the AI rally lifts the heavier names ahead of it.

A Second Squeeze on the External Account

India’s index de-ranking arrives alongside a separate squeeze on domestic capital markets. Equity mutual fund inflows fell 40% month-on-month to ₹22,908 crore ($2.4 billion) in May, the lowest in a year, data from the Association of Mutual Funds in India shows. The drop was broad: small-cap fund inflows fell 28% from April, mid-cap funds 33%, and large-cap funds 37%. (For context on the foreign side of the same day, see the record foreign exit on the May 29 MSCI rebalance and the Sensex slide that followed the same reshuffle.)

The trigger sits overseas. Crude oil has been hovering around $100 a barrel as the Iran war keeps markets volatile.

The lower inflows is due to extreme volatility in the markets as crude hovers around $100 a barrel, which has prompted near-term caution among investors.

Venkat Chalasani, chief executive of the Association of Mutual Funds in India (AMFI), made the point on June 10, 2026, in comments to Business Today.

The same shock carries a second-order consequence. India, the world’s third-largest oil importer, is acutely exposed: elevated crude inflates the import bill, widens the current account deficit, and compresses the margin on foreign exchange reserves. The government has signalled the squeeze. In May, it raised import tariffs on gold and silver to 15% from 6%, the steepest increase on record, according to the World Gold Council, and Prime Minister Narendra Modi made a public appeal for Indians to avoid gold purchases for a year. Gold exchange-traded funds subsequently recorded outflows of ₹7.25 billion, a record.

The Three-Part Policy Response

As the dual pressure mounted, the government announced a package of foreign investment reforms on June 5, 2026. The reforms target three different frictions at once: tax, market access, and currency hedging. AMFI’s monthly mutual fund inflow data is the live tape of the demand side the package is trying to revive.

The package was also timed to influence an imminent review by Bloomberg Index Services of India’s potential inclusion in its flagship Global Aggregate Index. Bloomberg deferred India’s entry in January 2026, citing gaps in tax-processing workflows and settlement infrastructure; the next decision is expected around mid-year. Inclusion could generate passive inflows of approximately $25 billion, analysts have estimated.

• Tax: The Income-tax (Amendment) Ordinance 2026 exempts foreign portfolio investors from tax on interest and capital gains from government securities, effective April 1, 2026.
• Market access: An expansion of the bond categories foreign investors can access, including new long-dated and green bond issuances.
• Currency: A concessional foreign currency deposit window under which the Reserve Bank of India will bear the full hedging cost for banks raising overseas deposits, a facility targeting approximately $20 billion.

What the Domestic Money Is Already Doing

The offset is already visible. Systematic investment plan, or SIP, contributions stayed above ₹30,900 crore in May, the 63rd consecutive month of positive equity inflows. Vaibhav Chugh, CEO of Abakkus Mutual Fund, said SIP contributions above ₹30,900 crore reflect the growing maturity of retail investors and reinforce the structural strength of domestic participation. The structural shift is in who holds the market.

On the May 29 MSCI rebalance, foreign portfolio investors recorded their largest single-session net sale on record. Domestic institutional investors, the mutual funds and insurers anchoring local demand, recorded their largest single-session net purchase on record. Foreign ownership of Indian equities has slipped to roughly 16%, the lowest in nearly two decades, and now sits below domestic institutional ownership.

Bajaj Finserv AMC argued in The Economic Times that India’s slide behind Taiwan and South Korea reflects the current AI-fuelled concentration of global capital, and that India’s structural growth story remains “largely unchanged.” India’s largest sector weight sits in financials, around 29%, against Taiwan’s near-monoculture in semiconductors, a market the AMC describes as more diversified than its regional peers.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Equity and currency markets carry risk, and benchmark weights, index figures, and flow estimates can change quickly. Readers should consult a qualified financial adviser before making investment decisions. All figures are accurate as of publication on June 11, 2026.