India has replaced Indonesia as the least-favored market for global fund managers in a recent Bank of America survey, with 32% of respondents underweight on Indian stocks. Investors are citing valuation concerns, slow economic growth, and limited exposure to the AI theme, despite strong recent corporate earnings and a return of foreign capital.
Global fund managers have turned cautious on Indian equities, making India the least-preferred market in Asia according to a recent survey by Bank of America. The survey, which polled 98 fund managers overseeing $272 billion in assets, revealed that 32% of them are now underweight on India. This represents a notable shift in sentiment, as investors have moved away from Indian stocks toward other regional markets.
This bearish stance creates a clear divide between investor sentiment and recent performance data. On one hand, companies within the Nifty 50 index reported strong results, with earnings growing 18% year-on-year in the latest quarter, which was ahead of market expectations. Furthermore, foreign institutional investors have shown renewed interest, injecting over $4 billion into Indian stocks this quarter, marking a recovery from earlier outflows.
Investors appear to be looking past these positive figures, focusing instead on potential headwinds. The primary concerns highlighted in the survey include India's lack of exposure to the artificial intelligence boom, which has been a major driver for global equity markets in 2026. Other significant worries cited by fund managers include high valuations, which some argue may not be fully supported by the future earnings outlook, and slow domestic economic growth. Additionally, there is a perception that the pace of structural reforms has not met investor expectations.
Market performance reflects some of this underlying caution. The Nifty 50 index has struggled this year, recording a decline of approximately 8% in rupee terms so far in 2026. This performance contrasts with sentiment toward Indonesia, which has improved in the same survey. The Jakarta Composite Index has gained momentum, moving up from its lows and signaling that global funds are rotating capital within the region.
While India faces these challenges, Japan and Taiwan remain the most preferred destinations for fund managers in Asia. These markets are often viewed as having better alignment with global technology trends, particularly artificial intelligence, which remains a key theme for international portfolios.
For investors, the key monitorables will be how corporate earnings sustain their growth momentum despite the broader economic environment. The market will also track the impact of rising energy prices and currency depreciation on profit margins, which remain significant risks for companies with high import costs. Whether Indian equities can reverse this sentiment will depend on economic indicators, the ability of companies to maintain profit margins, and whether the market can offer more compelling value relative to its regional peers.