India Asia’s least favored stock market, BofA survey shows

India has replaced Indonesia as the least favored major Asian equity market among fund managers surveyed by Bank of America, with concerns over its limited exposure to the artificial intelligence boom adding to worries about growth, valuations and reforms.

A net 32% of respondents were underweight Indian equities in BofA’s latest Asia Fund Manager Survey, according to findings reported by Bloomberg.

Indonesia, which had previously ranked last, improved to a net 27% underweight from 32% in July. Taiwan and Japan were the most favored markets.

The survey covered 98 investors managing $272 billion and was conducted from 7-13 August . The underlying BofA research is distributed to clients and is not publicly available.

India’s ranking comes even as some of the pressure on its markets has begun to ease. Foreign investors have returned after heavy selling earlier in the year, while corporate earnings have improved.

For fund managers in the BofA survey, however, India’s lack of direct exposure to the AI investment cycle remained the biggest concern, Bloomberg reported. Weaker growth expectations ranked next, followed by high valuations and a perceived lack of reforms.

That puts India at a disadvantage against markets such as Taiwan and South Korea, where listed companies offer far greater exposure to semiconductors, servers and other hardware tied directly to AI spending.

Reuters reported in July that the shift toward technology-heavy markets such as South Korea and Taiwan was one reason global funds had reduced their India allocations earlier in the year.

The contrast is sharper because global investors are not generally pulling away from equities.

Bank of America’s separate August global Fund Manager Survey showed cash holdings falling to 3.5% of portfolios, close to their lowest levels in nearly three decades. Equity allocations rose to their highest level since November 2021.

The Financial Times said the survey produced BofA’s third-most bullish reading of investor sentiment since 2022.

India, meanwhile, has started to see money come back.

Reuters reported that foreign investors sold $29.3 billion of Indian shares during the first six months of the year. They returned as buyers in July, putting about $1.6 billion into the market as crude prices eased, the rupee steadied and company results improved.

Earnings have also surprised on the upside.

Profits at Nifty 50 companies rose an average 18% from a year earlier in the June quarter, the fastest growth in 10 quarters, according to an analysis of company results by five brokerages reported by Reuters.

Motilal Oswal Financial Services had expected growth of about 10%. Nineteen sectors beat estimates, while the brokerage’s ratio of earnings upgrades to downgrades improved to 1.5.

Foreign investors had been looking for exactly that kind of improvement. Several fund managers told Reuters earlier in the quarter that lower oil prices and a steadier rupee would help, but that a sustained return to Indian equities would depend on stronger earnings.

The market has yet to recover much of the ground lost earlier this year.

The Nifty 50 remains down about 8% in 2026 despite recovering roughly 8% from its March low. That leaves it the second-worst performer among major Asian equity markets. A negative close for the year would end a run of 10 consecutive annual gains.

Oil is again complicating the picture. India imports close to 90% of its crude requirements, leaving the economy and the rupee vulnerable to higher prices. Crude had eased earlier in the quarter but has since climbed again as tensions involving Iran and the Strait of Hormuz have intensified.

Indonesia has moved the other way.

The Jakarta Composite Index has risen more than 20% from its June low. A firmer rupiah and hopes that market reforms could reduce the risk of an MSCI downgrade from emerging-market to frontier-market status have helped sentiment.

MSCI extended its review of Indonesia until November after raising concerns about ownership transparency, free float and trading data. The risk of a downgrade remains, but the rebound in Indonesian stocks has improved the market’s standing among the investors surveyed by BofA.

India now finds itself in a slightly awkward position. Foreign flows have turned positive, earnings have picked up and the market has recovered from its March lows. Yet it is still losing ground in fund managers’ regional preferences.