MSCI EM Index – How India lost FPI flows to Taiwan and South Korea?

FPI selling in Indian equities at $20.7 billion in the first 4 months of 2026 is nearly 25% higher than the FPI selling in the whole of 2025. The one story that has driven this sell-off is the much-talked about Sell-India and Buy-Taiwan/Korea trade.

A quick word on the MSCI EM Index

The MSCI EM index is an index of 1,204 emerging market companies across Asia, Latin America and Eastern Europe. However, this index has a bigger importance. The MSCI EM index assigns weightage to each country, which is an aggregate of the weights assigned to all companies in that country. Today, the four countries that have the highest weightage in the MSCI EM index are Taiwan, China, South Korea and India in that order. However, the big story for India is that way its weight has come down from 20.3% in 2020 to 11.4% today. That shift in weight made all the difference to FPI flows into India.

MSCI EM – A big factor in active and passive FPI flows

The MSCI EM index is a big trigger point for passive and active flows into various emerging markets; including India. Passive funds like index funds and index ETFs directly benchmark their allocations to the MSCI EM weight. Obviously, when the weight goes down, the allocations also go down. The massive selling in the MSCI EM India stocks on Friday 29-May was due to the likely reduction in India’s weight to closer to 11.4%. What about active flows? While active long-only funds are not exactly measured by the MSCI-EM allocations, they do report their exposure as overweight or underweight, relative to the MSCI-EM index. Hence, even active funds eventually gravitate to index weights.

Stock market performance of Taiwan and Korea

If Taiwan and Korea have substantially outperformed India since September 2024, the credit would go to 3 companies that make up 25% of the MSCI EM index viz.; TSMC of Taiwan, Samsung Electronics of South Korea, and SK Hynix also of South Korea. Let us talk about TSMC first. This stock has returned 115% in the last 1 year and since the Indian market peak of September 2024, TSMC has returned 144%. Samsung Electronics has given over 400% returns in the last 1 year and also since September 2024. SK Hynix has returned more than 1000% in the last 1 year and 1250% since September 2024. These trillion-dollar market cap companies caused most of the flow damage for India.

FPIs are worried about India’s double whammy

The big pivot of FPI money towards stocks like TSMC, Samsung Electronics, and SK Hynix is evident in their stock market returns. This has been a pivot towards the immediate beneficiaries of the AI story. Chips, semiconductors have ready demand linked to AI investments and are less vulnerable to ROI on AI. For India, the double whammy comes from two factors. Firstly, the AI pivot is something India missed out in the early stages. At the same time, Indian IT and other companies stand to lose substantially from AI impact. The other hit is likely to be on commodity inflation. Here again, India will take a hit but gain little. Clearly, it is this double whammy that has triggered FPI outflows from India.