Foreign Investors Are Growing More Cautious On Indian Equities
India has replaced Indonesia as the least-preferred stock market in Asia among global fund managersaccording to Bank of America’s latest fund manager survey.
The shift reflects growing concerns over India’s stock-market valuations, economic growth, lack of exposure to artificial intelligence and the pace of reforms.
The survey found that 32% of fund managers were net underweight on Indian equitiessignalling that a significant portion of global investors are allocating less to Indian stocks than their benchmark weight.
Lack Of AI Exposure Is The Biggest Concern
One of the biggest concerns highlighted by investors is India’s relatively limited exposure to the global artificial intelligence boom.
While technology companies in markets such as Taiwan, South Korea and the US are benefiting directly from huge investments in AI infrastructure, chips and software, India’s stock market has comparatively less exposure to these areas.
This has become increasingly important as AI-related companies and semiconductor businesses drive a significant portion of global equity-market returns.
For international investors looking for direct exposure to the AI growth cycle, India is therefore appearing less attractive than some of its Asian peers.
Weak Economic Growth Adds To The Pressure
Weak growth expectations have emerged as another major concern.
Although India continues to be one of the world’s fastest-growing major economies, investors are increasingly looking at whether corporate earnings and economic activity can justify the premium valuations attached to Indian stocks.
The combination of slower growth expectations and expensive valuations can make the market less attractive compared with countries offering cheaper stocks and stronger near-term earnings potential.
Indian Stocks Are Considered Expensive
Valuations remain another major problem.
Indian equities have historically traded at a premium to many emerging markets because investors have been willing to pay more for India’s long-term growth prospects.
However, that premium becomes harder to justify when earnings growth slows or other Asian markets begin offering stronger returns at lower valuations.
Fund managers are therefore increasingly questioning whether Indian stocks currently provide enough upside to compensate for their relatively high prices.
32% Of Fund Managers Are Underweight India
The latest survey showed that 32% of respondents were net underweight on Indian equities.
In simple terms, more fund managers are allocating less money to Indian stocks than they would normally allocate based on their benchmark portfolios.
The survey included 98 fund managers managing around $272 billion in assets.
Their views therefore provide an important snapshot of how international institutional investors currently perceive the Indian market.
Indonesia Has Become More Attractive
India’s position as the least-preferred market comes partly because sentiment towards Indonesia has improved.
The percentage of fund managers who were net underweight on Indonesian equities fell to 27%compared with 32% in July.
That improvement was enough for Indonesia to move ahead of India in investor preference rankings.
The change does not necessarily mean investors have suddenly become highly bullish on Indonesia. Instead, it shows that sentiment towards India has weakened relative to other markets.
Taiwan And Japan Remain The Favourites
At the other end of the ranking, Taiwan and Japan remain the most-preferred markets among investors surveyed.
Taiwan continues to benefit from its dominant position in the global semiconductor and AI supply chain.
Japan, meanwhile, has attracted investor interest because of structural changes in corporate governance, improving shareholder returns and a stronger economic outlook.
South Korea has also benefited from strong investor interest as technology and semiconductor stocks continue to perform well.
India’s Market Performance Has Been Weak
The investor pessimism comes after a difficult period for Indian equities.
The benchmark Nifty 50 has fallen by around 8% in 2026 so farwhile several other major Asian markets have delivered significantly stronger returns.
Taiwanese and South Korean equity benchmarks have gained more than 50% this year, while Japan’s market has also recorded a substantial rise.
The performance gap has made India’s relatively expensive valuations even more noticeable to global investors.
Foreign Investors Have Been Selling Indian Stocks
Foreign institutional investors have also been a major source of pressure on Indian equities.
Large-scale selling by overseas investors has weighed on benchmark indices and contributed to the market’s underperformance.
However, there are signs that the selling pressure may not continue indefinitely.
Global funds bought more than $4 billion worth of Indian stocks during the latest quarter, according to data cited in reports on the survey.
That suggests international investors have not completely abandoned India despite their increasingly cautious positioning.
Corporate Earnings Are Actually Improving
One of the more interesting aspects of the current situation is that India’s corporate earnings are not necessarily moving in the same direction as investor sentiment.
Earnings for companies in the Nifty 50 rose by around 18% year-on-year in the latest three-month period.
That is considerably stronger than the earnings growth that some analysts had expected.
Therefore, the bearish investor sentiment is not simply a reflection of collapsing corporate profitability.
Instead, investors appear to be focusing more heavily on valuations, future growth prospects and India’s limited participation in some of the world’s fastest-growing technology themes.
High Oil Prices Are Another Risk
Rising crude oil prices are also creating additional concerns for investors.
India imports a large proportion of its crude oil requirements, meaning higher global oil prices can increase the country’s import bill and put pressure on inflation, the current account and the rupee.
With geopolitical tensions keeping energy markets uncertain, investors are watching India’s exposure to higher oil prices closely.
A prolonged period of expensive crude could further complicate India’s growth and inflation outlook.
The Rupee Is Adding To Investor Concerns
Currency performance is another factor affecting foreign investors.
For a global fund manager, returns are ultimately measured in their home currency.
Even if an Indian stock performs reasonably well in rupee terms, a significant decline in the rupee can reduce the return when converted back into dollars or other currencies.
The combination of weaker equity performance and currency pressure therefore makes Indian assets less attractive to some international investors.
This Is Not A Verdict On India’s Economy
Being Asia’s least-preferred stock market does not mean investors believe India’s economy is fundamentally weak.
India continues to have several long-term advantages, including a large domestic market, strong digital infrastructure, expanding manufacturing capabilities and relatively high economic growth compared with many developed economies.
The survey is primarily about relative attractiveness of equity marketsrather than a judgement on India’s overall economic prospects.
Investors can remain positive about India’s long-term growth while believing that Indian stocks are currently too expensive.
The Bigger Problem Is Relative Value
This distinction is important.
The question for international investors is not simply whether India will grow.
It is whether Indian stocks will generate better risk-adjusted returns than stocks in Taiwan, Japan, South Korea, Indonesia, China or other markets.
If another market offers cheaper valuations, stronger earnings momentum or greater exposure to AI, investors may move money away from India even while remaining positive about India’s long-term economic story.
Could Sentiment Turn Around?
Investor sentiment towards India could improve if several factors move in the right direction.
Stronger economic growth, continued earnings expansion, lower valuations, faster reforms and greater participation in the global AI and technology ecosystem could all make Indian equities more attractive.
A decline in crude oil prices and greater currency stability could also remove some of the macroeconomic pressure currently facing investors.
India’s strong domestic investor base provides another important source of support for the market.
India’s AI Challenge Is Becoming More Important
The AI issue may ultimately prove to be one of the most important findings from the survey.
Global markets are increasingly rewarding companies that directly benefit from artificial intelligence infrastructure, semiconductors, data centres and AI software.
India has a large technology-services industry, but relatively fewer listed companies have direct exposure to the most profitable parts of the AI value chain.
That leaves Indian equities with less participation in one of the strongest investment themes currently driving global markets.
A Warning Sign For Indian Markets
India becoming Asia’s least-preferred stock market is therefore an important warning sign for investors and policymakers.
It does not mean India’s growth story is over.
Instead, it highlights the growing gap between India’s economic potential and the near-term return expectations of global equity investors.
With valuations still elevated and competition from other Asian markets intensifying, Indian companies may need stronger earnings growth to justify their premium valuations.
For investors, the message is straightforward: India remains a major long-term growth story, but global fund managers are currently finding better risk-reward opportunities elsewhere in Asia.
Summary
India has replaced Indonesia as Asia’s least-preferred stock market among global fund managers, according to Bank of America’s August 2026 survey. Around 32% of respondents are net underweight on Indian equities, citing limited AI exposure, weak growth expectations, high valuations and insufficient reforms. Indonesia improved to 27% net underweight, while Taiwan and Japan remained the most-preferred markets. India’s Nifty 50 is down around 8% this year despite corporate earnings improving. The survey suggests that global investors remain interested in India’s long-term growth but are increasingly concerned that current valuations do not offer enough near-term returns compared with other Asian markets.