India has become Asia’s least-favoured stock market among fund managers, despite improving corporate earnings and more than $4 billion in foreign investment flowing into Indian equities during the quarter. A Bank of America survey found that 32% of respondents were net underweight on Indian stocks, putting the country behind Indonesia in investor preference.
The survey covered 98 fund managers overseeing $272 billion in assets, with responses collected from August 7 to August 13. Investors cited India’s limited exposure to the artificial intelligence investment boom as their biggest concern, followed by weak economic growth, elevated valuations and a lack of reforms.
The change in sentiment is notable because Indonesia, which had previously ranked as Asia’s least-favoured market, has now moved ahead of India. The result suggests that investors are looking beyond recent earnings performance and foreign inflows when deciding where to put money across Asian markets.
BREAKING: India is now the least favored Asian stock market among Global fund managers pic.twitter.com/ieLvMyfAGA
— Patterns (@Patterns0001) August 19, 2026
Why investors are losing patience with India despite strong foreign inflows
India has attracted substantial capital over the past decade because of its economic growth prospects and large domestic consumer market, but valuation has become harder to justify. The MSCI India Index traded at roughly 24 times forward earnings in mid-2026, compared with about 14 times for emerging-market equities, leaving investors paying a considerable premium for Indian companies. The foreign money entering India does not necessarily mean investors are becoming more optimistic about the market as a whole.
That premium becomes harder to defend when earnings growth does not accelerate enough to justify it. India’s economy remains one of the fastest-growing among major economies, but investors are increasingly asking what they are getting for the higher price. Indonesia, by comparison, offers exposure to commodities, manufacturing and the electric-vehicle supply chain at lower valuations. That makes the relative-value argument more difficult for India, even when foreign investors continue to allocate money to the country.
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Can India benefit from the AI boom without becoming an AI market?
India has a major advantage in software, engineering talent and digital infrastructure, but much of the current AI investment cycle is being captured by companies building chips, data centres, cloud infrastructure and power capacity. Global investment in AI-related data centres is expected to reach hundreds of billions of dollars this year, creating a powerful earnings cycle for companies directly supplying the infrastructure.
India can still capture part of the opportunity through software services, AI deployment and domestic infrastructure. Until then, improving profits and foreign inflows may not be enough to change the market’s relative standing in Asia.
Elsewhere in India, Karnataka has announced plans to launch the country’s first government-backed Artificial Intelligence University, aimed at advancing AI research, education, and innovation.
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