India slips in MSCI Emerging Markets Index as AI boom lifts Taiwan and South Korea

Global investors track the MSCI indices because passive funds worth trillions of dollars follow the weights these indices assign to countries and companies. Any change in those weights triggers automatic buying or selling. The latest MSCI rebalancing, which took effect on May 29, 2026, pulled Indian benchmark indices down by about 1.5 per cent in a single session, with foreign portfolio investors accounting for nearly 69 per cent of the day's turnover on the National Stock Exchange.

In the MSCI Global Standard index, India's weight slipped from 12.4 per cent to 12.3 per cent. The count of Indian firms in the index stayed at 165. Four companies dropped out and four new ones came in. The far bigger concern is the MSCI Emerging Markets index, where India's weight has fallen to 11.94 per cent. In September 2024 it stood at almost 21 per cent. Today, India ranks behind Taiwan (24.84 per cent), China (23.05 per cent) and South Korea (18.69 per cent).

The reason for this slide is the artificial intelligence boom. AI hardware demand, especially for advanced semiconductors, has lifted the share prices of chip makers in East Asia to record highs. The biggest gainer is Taiwan Semiconductor Manufacturing Company, the world's largest chip foundry, whose share price has more than doubled in the past year. TSMC alone has a 14.21 per cent weight in the Emerging Markets index, which is higher than the weight of all Indian companies put together would be at the top end.

Taiwan has now overtaken India as the fifth most valuable stock market in the world by market capitalisation. South Korea's chip giants SK Hynix and Samsung Electronics have each crossed the one trillion dollar market cap mark. Together they make up about 10 per cent of the MSCI Emerging Markets index. By contrast, India's heaviest weights in the index, HDFC Bank and Reliance Industries, sit at just 0.79 per cent each.

The MSCI rebalancing has also coincided with heavy foreign outflows from Indian equities. So far in 2026, foreign portfolio investors have pulled out about 24.1 billion US dollars from Indian stocks. In 2025 they had withdrawn 18.9 billion dollars, and in 2024 they were net buyers of barely 124 million dollars. Adding these up, foreign investors have been net sellers of nearly 43 billion dollars of Indian shares since the start of 2024. A weak rupee has made the picture worse for dollar-based investors.

For India, the lesson is structural. The country has no large listed company with a meaningful artificial intelligence or semiconductor manufacturing presence. The information technology services sector, long the face of Indian capital markets abroad, is seen as a beneficiary of AI rather than a builder of it. Until Indian companies move up the AI value chain or India develops a chip manufacturing base, the country's weight in global indices may keep slipping as East Asian peers race ahead.

For exam aspirants, this story brings together three ideas: how passive index funds shape capital flows, why the semiconductor industry has become the new strategic asset class, and why India's policy push on semiconductor fabrication units and the IndiaAI mission matters for long-term market positioning.