The Great AI Hijack: Why India Was Crowded Out of the Global Top 10

SYNOPSIS

Indian fundamentals are intact, but global capital has been hijacked by artificial intelligence. In a blind rush for silicon, automated funds have quietly drained $63 billion from Indian equities to feed just three global chip hubs, proving that in today’s market, hardware beats growth.

India took 26 years to build a top-10 presence in the world's most tracked index. It took 18 months to lose it.

Imagine running a marathon at your personal best better than you have ever run before only to watch a competitor fly past you on an electric motorcycle. That is exactly what just happened to India in the global capital markets.

This is not a story about India stumbling. As recently as July 2024, India commanded 20% of the MSCI Emerging Markets Index a record high, nearly double its 8% weight in 2020. India had just made history for the first time ever; it had overtaken China as the largest country in the MSCI EM Investable Market Index. Morgan Stanley called it a generational rerating. Eighteen months later, that same weight sits at 10.87% a six-year low.

In March 2026, HDFC Bank and RIL held 7th and 8th position in the MSCI EM Index. By May 2026, they had slipped to 11th and 12th, each carrying a sub 0.8% individual weight. Not a single Indian company now features in the top 10 the first time that has happened in 26 years. The economy did not collapse or fundamentals did not break. The world simply found a better bet and poured everything into it.

To understand the stakes, you need to understand what the MSCI Emerging Markets Index actually is. Launched in 1988, it is the definitive global benchmark for exposure to 24 developing economies. Over $750 billion in passive funds track it strictly. These are not funds making judgment calls they are algorithmically forced to hold each country in exact proportion to its index weight. Every single percentage point of MSCI EM weight represents roughly $7 billion in automatic tracking capital. India’s slide from 20% to 10.87% means approximately $63 billion in passive allocation has structurally shifted away from Indian markets.

Who Took India's Chair? The answer is AI.

SMC alone now holds 14.46% of the entire MSCI EM Index. That is more than the combined weight of every Indian company in the benchmark from a single Taiwanese chipmaker. Samsung Electronics holds 7.78%. SK Hynix holds 6.60%. Together, just three semiconductor firms account for nearly 29% of the entire EM benchmark. Taiwan and South Korea together command 49.5% of the index. China’s 20.36%, and three countries now control roughly 70% of a benchmark meant to represent 24 diverse economies.

The earnings disparity is brutal. According to MOFSL research, AI and semiconductor companies posted 34% CAGR in market cap and 32% CAGR in profits across 2024-25, with earnings projected at 46% CAGR over the next two years. HDFC Bank and RIL are down 26% and 20% from their respective peaks. In that same window, TSMC surged 48%, Samsung 147% and SK Hynix an extraordinary 194%. India’s market underperformed the MSCI EM Index by more than 50 % points over this period.

The passive fund mechanism is the part most people miss. When MSCI rebalances, fund managers are not choosing to exit India. A passive fund tracking the MSCI EM Index that held India at 20% now holds it at 10.87% and has to sell the difference to buy more TSMC and Samsung. That selling pressure is persistent, and completely independent of Indian earnings.

FII’s have pulled over ₹2.76 lakh crore from Indian equities in 2026 alone, following record outflows in 2025. India’s equity market has slipped to 7th place globally by market capitalisation, overtaken by both Taiwan and South Korea. DI’s have held the line. Indian funds deployed over ₹4 lakh crore into equities in 2026. While a robust domestic backstop can absorb temporary sentiment shocks, it cannot indefinitely replace the structural, automatic inflows driven by global MSCI weight.

If the AI rally sustains, passive capital will keep gravitating toward Taiwan and South Korea. India's index weight stays under mechanical pressure regardless of its domestic earnings trajectory, policy environment, or growth story. If the AI trade corrects and the concentration risk is real; three chip companies controlling 29% of a supposedly diversified EM index is not healthy.

"Make in India" is the mantra, but "Made in Taiwan" is still the reality. Until Dalal Street produces its own silicon giants, the Indian tiger is essentially running on a Taiwanese battery. The engine is roaring, the chassis looks spectacular, but Hsinchu still owns the ignition key.

Ayushi Vora