India Becomes Asia's Least Preferred Market: What's Behind The Investor Exodus?

India's stock market has emerged as the least preferred market in Asia, with investors increasingly concerned about the lack of listed companies offering clear exposure to the artificial intelligence (AI) boom, according to a Bank of America survey of fund managers.

The survey, conducted between August 7 and August 13, found that 32% of fund managers were net underweight on Indian equities. Weak economic growth emerged as the second-biggest concern, followed by a lack of policy reforms to improve the business environment and elevated stock valuations.

The survey received responses from 98 fund managers overseeing $272 billion in assets.

AI Exposure Becomes Key Concern

The lack of listed Indian companies with clear exposure to AI has emerged as the biggest concern for investors, according to the survey.

While Indian technology companies have historically played a major role in global IT services, investors are increasingly questioning whether the country's listed market offers sufficient exposure to the next major technology cycle.

Weak economic growth was identified as the next major risk, while concerns around policy reforms and high valuations also weighed on investor sentiment.

The findings come despite an improving earnings outlook for Indian equities.

Earnings of companies in the benchmark NSE Nifty 50 rose 18% year-on-year in the latest three-month period, exceeding Motilal Oswal Financial Services' estimate of 10% growth.

Global funds have also bought more than $4 billion of Indian stocks this quarter, the highest inflow among regional emerging markets, following record outflows in the first half of the year.

Nifty On Track To End 10-Year Winning Streak

Despite the recent improvement in earnings and foreign inflows, Indian equities have remained under pressure.

The Nifty 50 has recovered about 8% from its recent March low but remains down around 8% in 2026, making it the second-worst-performing major market in Asia. The Sensex has fallen 9.75% so far this year.

The Nifty is also on track to break a 10-year streak of annual gains.

India was previously ranked the least preferred Asian market in Bank of America's May 2026 survey, when rising energy prices had heightened concerns about India's growth outlook following the US-Iran war.

Those concerns have resurfaced as energy prices rise again, with no clear resolution to the conflict.

Indonesia Gains Investor Favour

Investor sentiment towards Indonesia has improved, with the share of fund managers who were net underweight on Indonesian equities falling to 27% from 32% in July.

The improvement follows a more than 20% rally in Indonesia's benchmark Jakarta Composite Index from its June low. Measures by Indonesia's central bank to stabilise the currency, along with easing concerns over a possible downgrade to frontier-market status by MSCI, have helped revive investor confidence.

Taiwan and Japan continued to be the most preferred markets among investors.

The latest survey indicates that India's improving corporate earnings and recent foreign inflows have yet to translate into a broader improvement in investor sentiment, with concerns over AI exposure, growth, reforms and valuations continuing to weigh on the market