India Becomes Least-Favoured Asian Stock Market in BofA Survey Amid AI and Valuation Concerns
A recent Bank of America Corp. survey has revealed that India has replaced Indonesia as the least-favoured equity market among regional fund managers, highlighting an increase in investor caution despite resilient domestic earnings.
What Happened
According to the Bank of America fund managers’ survey conducted between August 7 and August 13, sentiment towards Indian equities deteriorated, pushing the country to the bottom of regional preferences. The survey encompassed responses from 98 fund managers who collectively manage $272 billion in assets. Approximately 32% of the participants indicated they were net underweight on Indian stocks.
This shift comes even as global investors directed more than $4 billion into Indian equities during the current quarter, representing the largest regional emerging market inflow following record outflows in the first half of the year. Concurrently, investor sentiment towards Indonesia improved, with the share of underweight fund managers dropping from 32% in July to 27%.
Key Highlights
- Survey Results: India replaced Indonesia as the least-favoured Asian equity market, with 32% of surveyed fund managers holding a net underweight position.
- Primary Concerns: Fund managers cited an absence of clear artificial intelligence exposure as their foremost concern, followed by weak economic growth, elevated market valuations, and a lack of economic reforms.
- Earnings Contrast: Benchmark NSE Nifty 50 companies recorded an 18% year-on-year earnings growth for the latest three-month period, exceeding the 10% projection from Motilal Oswal Financial Services Ltd.
- Market Performance: Down 8% year-to-date despite an 8% rebound from its March low, the Nifty 50 is Asia’s second-worst performing major equity benchmark this year and risks halting a 10-year run of annual gains.
- Regional Leaders: Japan and Taiwan retained their positions as the preferred markets across the region.
- External Pressures: Higher energy costs stemming from crude price surges related to the US-Iran conflict continue to weigh on investor sentiment.
Why This Matters
India is Asia’s fourth-largest equity market, and the negative shift in fund manager sentiment marks a growing disconnect between domestic earnings and global portfolio allocations. While companies in the Nifty 50 showed an 18% rise in quarterly earnings, concerns regarding valuation levels and broader economic expansion have kept foreign managers cautious. Additionally, the comparative rally in alternative markets, such as Indonesia’s Jakarta Composite Index rising over 20% from its June low on currency stabilization efforts, demonstrates how capital allocation is adjusting across the region.
What to Watch Next
Market participants will monitor whether rising energy costs continue to exert pressure on Indian economic performance, particularly with ongoing tensions linked to the US-Iran war showing no signs of near-term resolution. Observers will also track whether the benchmark Nifty 50 can sustain its recovery from March lows or conclude the year breaking its decade-long streak of consecutive annual gains.
Frequently Asked Questions
Why are fund managers underweight on Indian equities?
According to survey details reported by Bloomberg, the main factors include a lack of clear artificial intelligence exposure, weak economic growth, high valuations, and an absence of market reforms.
Which Asian markets are currently preferred by fund managers?
The Bank of America survey indicated that Japan and Taiwan remain the most preferred markets in the region among institutional investors.
How have Indian corporate earnings performed recently?
Companies forming the benchmark NSE Nifty 50 reported an 18% year-on-year earnings increase for the latest three-month period, outperforming the 10% growth anticipated by Motilal Oswal Financial Services Ltd.
Source: Based on reporting from the Times of India and Bloomberg coverage of the Bank of America Corp. fund managers’ survey.