India is likely to benefit from probable upgrade of South Korea market to the ‘developed’ status by the MSCI group. MSCI indices are among the major benchmarks for global allocation of equities and an estimated $5 trillion in funds reportedly track the MSCI indices. UK-based Financial Times Stock Exchange (FTSE) Group has already upgraded it to the ‘developed’ status and it is likely MSCI will follow suit in its upcoming review in mid-2010.

Korea market is currently classified as ’emerging’ and it has a weightage of 12.7% in the MSCI Emerging Market Index while India has a lower 7.4%. Market experts believe the reclassification could lead to a net $2.5 billion inflow for South Korea while India benefits from more leg room among the emerging markets. India is already getting more allocations – with it being the second fastest growing emerging economy behind China.

MSCI emerging market index has 22 nations in all, with higher weights for Brazil, China, Taiwan, Russia, South Africa and Mexico.

Ambareesh Baliga, vice-president at Karvy stock broking said, “It is still speculative but we can argue that Indian’s weightage will move up once Korea gets classified as a developed market. But he adds that India should also garner more fund flows if it has to gain a large share in the emerging market index. Foreign institutional investors (FII) have till date pumped in over $5.54 billion into Indian equity market in the current calendar year, which is still lesser than that of South Korea. Even last year, when Indian markets received record inflows of $17.2 billion, Korea got a record $24.4 billion. It is expected that the upgrade could lead to diversion of the Korean money into other emerging markets. Last year, MSCI considered markets of Korea, Taiwan and Israel for possible re-classification.

But only Israel passed the review. Lack of full convertibility of the Korean won, rigidity of the investor registration system, and anti-competitive practices regarding index-related financial products was cited by reviewers as reasons for Korea?s disqualification.