India Turns Asia's Least-Favoured Stock Market

Synopsis

India has become the least favourite stock market in Asia for investors in Bank of America's August fund manager survey, as 32 percent are net underweight on shares of the nation. This is despite the Nifty 50 companies reporting the quickest earnings growth in 10 quarters, with investors pointing to lack of exposure to AI and high valuations, as well as the weak rupee.

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India becomes Asia's least-favourable stock market

The 32% of fund managers surveyed by BofA have become underweight on Indian equities, driven by limited exposure to artificial intelligence, despite the corporate earnings reaching its best performance in a decade.

Widely seen as a global capital-grabbing market for much of the past decade, the latest analysis by the world's largest names on Wall Street is unequivocal: Fund managers have the fewest intentions to invest in Indian stocks.

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Indian stocks are the most "bearish" of all major markets in the region, as Bank of America's latest survey of fund managers shows 32% of respondents were net underweight on the country, compared with 20% in Indonesia. The survey asked 98 fund managers who hold $272 billion in assets to respond between Aug 7 and 13.

The Case Against India

There was no single reason given by the fund managers. Without listed companies with strong exposure to AI, weak economic growth, lack of policy reforms and high stock valuations were the top concerns. The business cycle remains in strengthening mode, but sentiment has "gone sour". The earnings of companies in the benchmark Nifty 50 soared 18% year-on-year in the latest quarter, well above the Motilal Oswal Financial Services' estimate of 10% growth.

The disconnect is exacerbated by currency. Modest losses in rupees are not important for a foreign investor as dollar losses are more crucial. The Nifty 50 is down by approximately 7.9% in rupee terms this year, compared to a 13.6% drop in dollar terms, which in itself accounts for a lot of the market's fall from grace.

What is often underestimated is that the Reversal, not a New Trend, is occurring

It's not the first time India found themselves at the bottom of the table. Earlier, India was the least-favoured Asian market in BofA's survey in May 2026, when it was feared that high energy costs would negatively impact growth prospects after the conflict between the US and Iran.

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Geopolitical uncertainty, and the rising yields of overseas bonds have all taken a toll on sentiment, along with persistent selling by overseas investors, a weak rupee, and stretched valuations and subdued domestic growth.

Sentiment also jumped significantly in the case of Indonesia, where the net underweight position dropped to 27% from 32% in July following a more than 20% improvement in the Jakarta Composite Index from its previous low in June. Taiwan and Japan continued to be the most preferred markets in the region.

The numbers at the end of the story

The overall sentiment in the picture is not consistently downbeat. Despite the record withdrawals in the first half of year, global funds are buying over $4 billion worth of Indian stocks this quarter, the highest among regional emerging markets. Despite that, the market is still recovering as it has increased by about 8% since hitting the bottom in March, but it is still set to end a 10-year streak of gains for the first time since 2016.

The underweight stance is not an assessment of the fundamentals, though, but rather a relative attractiveness view, according to market watchers. A global manager who thinks India is doing worse than Taiwan or Korea expects to lose a dollar, get no exposure to artificial intelligence, and see a growing oil bill; on that scorecard being underweight is a sensible strategy not a bearish call.

If the rupee stabilises, on this reading, the dollar-return gap will close on its own and this earnings strength that is already apparent to domestic investors will become apparent to global investors as well.