India is set to become a dominant force in the MSCI emerging markets index, potentially surpassing China in influence. As of August, India’s weightage in the index rose to 19.8%, narrowing the gap with China’s 24.2%. This increase, from 9.2% in December 2020, highlights India's growing appeal to foreign investors. Morgan Stanley's latest analysis notes that this shift could lead to more foreign capital inflows, enhancing India’s stock market performance further.

The stock market rally in India is already among the best globally, with the Nifty 50 index achieving record highs. The index has surged by 16% this year, driven by robust foreign portfolio investment and sustained domestic support. Morgan Stanley's Ridham Desai anticipates that the rally will continue, fueled by fiscal consolidation and expected global interest rate cuts. Despite the impressive gains, Desai believes the current bull market is only halfway through, suggesting potential for further growth.

Morgan Stanley has reaffirmed its positive outlook for India, maintaining it as a top pick among emerging markets and a strong second choice in the Indo-Pacific region, behind Japan. The firm favors sectors like financials, technology, consumer discretionary, and industrials, while being cautious on others. This strategic positioning reflects confidence in India's continued market resilience and growth potential.