A new survey by Bank of America Corp (BofA) reveals a significant shift in investor sentiment, naming India as Asia's least-preferred stock market. This marks a notable change, as India replaces Indonesia in this position, reflecting growing caution among fund managers regarding the market's prospects.
Key concerns highlighted by the survey include India's limited exposure to artificial intelligence (AI), coupled with worries about weak growth, elevated valuations, and a perceived absence of crucial economic reforms. These factors collectively contribute to a bearish outlook on Indian equities.
Investor Sentiment and Market Performance
The BofA survey, which polled 98 panellists overseeing assets worth approximately $272 billion between August 7 and August 13, found that 32% of respondents were net underweight on India. This indicates a strong inclination among a substantial portion of fund managers to reduce their holdings in Indian stocks.
Despite the Nifty 50 index seeing an 8% rise from its March low, it remains one of Asia's poorest performers this year, registering an 8% loss year-to-date. Both the Sensex and Nifty have experienced declines of 9.75% and 7.96% respectively in 2026, putting the Nifty 50 on track to break a decade-long streak of annual gains.
Reasons for the Bearish Outlook
The lack of clear AI exposure emerged as the primary concern for Indian equities, a significant factor in an increasingly technology-driven global market. Following closely, weak economic growth was identified as another major risk. High valuations for Indian stocks and the perceived slow pace of reforms further deepened the negative sentiment among investors.
In contrast, sentiment towards Indonesia has improved, with the percentage of fund managers net underweight on that market falling from 32% in July to 27%. Taiwan and Japan continue to be the most favored markets among investors in the region.
Broader Context and Historical Trends
The findings come at a time when Indian stocks have seen declines over the past two weeks, even as the earnings outlook for companies has improved. This suggests that investor caution persists despite strengthening fundamentals. Global funds had purchased over $4 billion of local stocks this quarter, the highest among regional emerging markets, following record outflows in the first half of the year.
Earnings for companies listed on the benchmark NSE Nifty 50 surged by 18% year-on-year in the latest three-month period, surpassing Motilal Oswal Financial Services Ltd.’s estimate of 10% growth. India was last ranked as the least preferred market in the BofA poll in May, primarily due to growth pressures from higher energy costs following the US-Iran war. With energy prices once again on the rise amid ongoing geopolitical tensions, investor sentiment faces renewed pressure.
Indonesia's improved standing is partly attributed to a rally of over 20% in the Jakarta Composite Index from its June low. This recovery was bolstered by the central bank's efforts to stabilize its currency and an easing of concerns regarding a potential downgrade to frontier-market status by MSCI Inc.