Indian stocks now least preferred in Asia: BofA survey

According to a recent Bank of America (BofA) survey, Indian stocks have fallen to the least preferred market in Asia, reflecting a significant shift in investor sentiment. The survey, conducted among fund managers, revealed that India's attractiveness has waned due to concerns over high valuations and slowing earnings growth. This marks a notable reversal from earlier in the year when India was among the top picks. Analysts suggest that the combination of rich valuations, regulatory headwinds, and global macroeconomic uncertainties have prompted investors to rotate funds towards other Asian markets like China, South Korea, and Taiwan, which offer relatively cheaper valuations and better growth prospects.

The survey highlights that a net 44% of respondents now hold an underweight stance on Indian equities, a sharp swing from the previous month's overweight positioning. This shift is attributed to several factors, including the recent underperformance of Indian markets compared to regional peers. While the Nifty 50 index has delivered modest returns, other Asian indices have outperformed, leading to a reassessment of India's risk-reward profile. Furthermore, concerns over the impact of rising interest rates and inflation on corporate margins have added to the pessimism. The survey also noted that foreign institutional investors (FIIs) have been net sellers in Indian markets over the past few weeks, with outflows totaling over ₹12,000 crore in August alone.

The table below summarizes the key findings from the BofA survey, illustrating the shift in investor preferences across Asian markets:

The survey also underscored that the deterioration in India's outlook is driven by both macro and micro factors. On the macro front, the widening current account deficit and persistent inflationary pressures have raised doubts about the sustainability of India's growth story. On the micro front, earnings downgrades have been more pronounced in India compared to other Asian economies. As a result, fund managers are increasingly favoring markets with stronger earnings momentum and more attractive valuations. The survey's findings align with broader trends in global capital flows, where investors are seeking diversification away from crowded trades.

“The shift in sentiment is a clear signal that investors are recalibrating their Asia portfolios, with India losing its premium status due to valuation concerns and growth uncertainties,” said analysts tracking the survey.

While some experts argue that the negativity may be overdone, given India's long-term structural strengths such as a large domestic market and improving corporate governance, the near-term outlook remains challenging. The survey suggests that a sustained recovery in Indian equities would require either a meaningful correction in valuations or a revival in earnings growth. Until then, India is likely to remain out of favor among global investors. For those looking to navigate these turbulent times, staying informed with timely market insights is crucial.