(Bloomberg) -- India’s overtaking of China in some global gauges will likely usher in a bigger influx of foreign flows, giving equities in the South Asian country another boost.

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India has overtaken China in the MSCI AC World IMI Index with a 2.35% weighting compared to a 2.24% for the latter, according to a Morgan Stanley report dated Sept. 17. That makes the South Asian market the sixth largest globally, narrowly behind France.

Earlier this month, India surpassed China to become the biggest market in the MSCI Emerging Markets Investable Market Index, according to Morgan Stanley’s analysis.

The milestone underscores investors’ rising faith that India may be the new engine of global economic growth as China falters amid a lack of strong stimulus and persistent deflationary pressures. Foreigners, whose holdings in Indian stocks periodically fell this year, are set for their biggest quarterly purchases since June 2023.

“India’s overtaking of China in some of MSCI indices represents an ongoing rotation as investors shift to new EM growth engines,” said Marvin Chen, a strategist at Bloomberg Intelligence. “Foreign inflows to India have been strong over the past year, and the weighting change is a reflection of that.”

India’s $5 trillion stock market has been hitting multiple fresh highs this year as global investors returned after political headwinds from the elections dissipated.

By comparison, China’s weighting in global benchmarks has shrunk over the past few years. The CSI 300 Index is hovering near a five-year low.

To be sure, India has yet to displace China in the more widely-tracked MSCI World Index and the MSCI Emerging Markets Index. While IMI gauges include a wider range of companies including smaller firms, they are not the most widely used by global investors, who still prefer measures carrying only large and midcap stocks.

“We think India will continue to gain share due to market outperformance, new issuance and liquidity improvements,” Morgan Stanley strategists including Jonathan Garner wrote in the note on Tuesday. “We remain overweight India and underweight China in our pan-Asia EM asset allocation.”

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