India has become the least-favored equity market in Asia according to a Bank of America fund manager survey. Concerns over artificial intelligence exposure and economic growth are weighing on sentiment, even as domestic corporate earnings show resilience.
Indian equities have faced a shift in global investor sentiment, with the country now ranked as the least-favored market in Asia according to a recent survey conducted by Bank of America. The poll, which gathered insights from 98 fund managers overseeing $272 billion in assets between August 7 and August 13, shows that 32% of respondents are now net underweight on India.
The AI Gap and Growth Concerns
The primary driver behind this bearish sentiment is the perception that Indian companies lack clear exposure to the booming artificial intelligence sector. Global investors, who are increasingly allocating capital based on AI-driven growth potential, have flagged this as a significant drawback. Alongside this, there are growing concerns regarding the pace of economic growth and the perceived slowdown in structural policy reforms. Investors are also wary of elevated valuations, which make the market appear expensive relative to its current growth trajectory.
The Earnings Disconnect
There is a notable gap between the sentiment captured in the survey and the actual financial performance of Indian companies. While fund managers are cautious, the data tells a more resilient story. Companies within the benchmark NSE Nifty 50 index reported an 18% year-on-year earnings growth in the most recent quarter, which comfortably outperformed the 10% growth projection previously set by analysts. Furthermore, foreign investors have poured over $4 billion into Indian equities this quarter, indicating that while sentiment may be negative, capital flows are still active.
Market Performance and Regional Shift
This shift in sentiment marks a reversal for India, which was previously a top pick for many global funds. The Nifty 50 index has declined by roughly 8% so far this year, putting its historic streak of 10 consecutive years of annual gains under pressure. In contrast, investor sentiment towards Indonesia has shown signs of improvement, with only 27% of managers now underweight on the market, down from 32% in July. The Jakarta Composite Index has rallied more than 20% since June, supported by stabilizing currency and positive central bank policies.
For investors, the key monitorable will be whether Indian companies can maintain their strong earnings momentum to justify current valuations. The market will likely watch for any signals of renewed policy reform or domestic demand recovery that could change the current perception among global fund managers. The ongoing caution around high valuations and energy prices remains a critical risk factor to track in the coming months.