India becomes least-favoured Asian stock market in BofA survey – why fund managers are underweight

Indian equities have declined over the past two weeks despite a brighter earnings outlook.

India’s stock market, among the worst performing this year, has now replaced Indonesia to become the ‘least-favoured’ stock market in India, as per a fund managers’ survey by Bank of America Corp. This signals growing investor caution for the Indian stock market.The survey received responses from 98 fund managers overseeing a combined $272 billion in assets, with the responses collected between August 7 and August 13.Investor sentiment towards Indonesia, meanwhile, has improved. The share of fund managers who were net underweight on the country fell to 27% from 32% in July. Taiwan and Japan continued to rank as investors’ preferred markets in the region.

Why fund managers are underweight on India

According to a Bloomberg report, the survey identified the absence of clear exposure to artificial intelligence as the biggest concern for Indian equities, followed by weak economic growth.As many as 32% of respondents were net underweight on India. The lack of reforms and elevated valuations were also cited as factors behind the negative view of Asia’s fourth-largest equity market.The survey results come at a time when Indian equities have declined over the past two weeks despite a brighter earnings outlook, indicating that investors remain cautious even as the underlying fundamentals of the market improve.Global investors have bought more than $4 billion worth of Indian stocks during the current quarter, the highest inflow among emerging markets in the region, according to Bloomberg-compiled data.This follows record outflows during the first half of the year. Earnings reported by companies in the benchmark NSE Nifty 50 rose 18% year-on-year in the latest three-month period, well ahead of the 10% growth projected by Motilal Oswal Financial Services Ltd.India was last ranked as the least-preferred market in the BofA survey in May, when rising energy costs were putting pressure on economic growth following the US-Iran war and the resulting surge in global crude prices.With no indication that the conflict is nearing a resolution, energy costs are rising again, adding to investor concerns.Although the Nifty 50 has recovered 8% from its recent March low, it remains Asia’s second-worst performing major market this year, with an 8% decline. The index is also heading towards ending a remarkable 10-year streak of annual gains.Investor sentiment towards Indonesia has moved in the opposite direction. The benchmark Jakarta Composite Index has gained more than 20% from its June low, helped by central bank measures aimed at stabilising the currency and easing concerns that MSCI Inc. could downgrade the market to frontier-market status.