India has surpassed China for the first time in a key MSCI equity index, aided by consistent economic growth and high flows. India's weight in the MSCI investable large-, mid-, and small-cap index has increased to 2.35 percent, surpassing China's weight of 2.24 percent, Morgan Stanley said in a note on Tuesday.

"India will continue to gain share due to market outperformance, new issuances, and liquidity improvements," analysts led by Morgan Stanley's Jonathan Garner said.

India's nominal gross domestic product growth rate is running in the low teens, more than thrice the economic growth in China, generating a "profound divergence in earnings growth environment", according to the brokerage. To note, China's weight on the index reached its peak in early 2021.

Earlier this month, Morgan Stanley predicted that India would surpass China in the MSCI Emerging Markets index because India's stock market boom was "only past the halfway mark." Analysts believe that India's increased weight in the MSCI indices will result in additional inflows.

India has been one of the world's best-performing markets this year, with its benchmark indices, the NSE Nifty 50 and the S&P BSE Sensex, up 17% and 15%, respectively. China's Shanghai Composite index has fallen by approximately 9% this year due to concerns about the economy and the housing industry.