India now Asia's least favored stock market: BofA poll

Investors are allocating Indian stocks below normal or benchmark levels in their portfolios.

There is bad news for the Indian stock market. In the latest fund manager survey by Bank of America Corp (BofA), India has taken the position of Asia's least favored stock market, a spot previously held by Indonesia. According to a report by Bloomberg, this change reflects the growing caution and concern among investors regarding the Indian stock market.

Interestingly, while the earnings of some Indian industrialists are growing rapidly, investor interest in the Indian stock market is declining. Investors are currently hesitant to invest in the Indian stock market, fearing potential losses or the risk of their investments sinking.

In the BofA survey, 32% of fund managers were net underweight on Indian stocks. This means these investors are giving Indian stocks a lower share in their portfolios than the normal or benchmark level.

The biggest reason for investor concern regarding the Indian stock market is the lack of clear and strong exposure in the Artificial Intelligence (AI) sector. Additionally, weakening economic growth, lack of reforms, and high stock valuations are also major reasons for the negative sentiment among investors. In contrast, investor sentiment towards Indonesia has improved. In the survey, 27% of fund managers were net underweight on the Indonesian market, down from 32% in July. Meanwhile, Taiwan and Japan remain the most favored Asian markets for investors.

A total of 98 fund managers participated in this Bank of America survey, managing assets worth approximately $272 billion. Responses for the survey were collected between August 7 and August 13. The survey results have emerged at a time when, despite a better earnings outlook for Indian companies, Indian stocks have seen a decline over the past two weeks. This indicates that despite improvements in fundamentals, investors remain cautious about the Indian market.

However, there are some positive signs on the foreign investment front. According to data compiled by Bloomberg, global funds have purchased more than $4 billion worth of Indian stocks this quarter. This is the highest investment among regional emerging markets. Earlier, in the first half of the year, there was a record level of foreign capital outflow from the Indian market.

Corporate earnings have also provided some support to the market. The profit of companies included in the benchmark NSE Nifty 50 increased by 18% in the latest three-month period compared to last year. This was significantly higher than the 10% growth estimate by Motilal Oswal Financial Services. Previously, in May, the BofA survey had also identified the Indian stock market as Asia's least favored market. At that time, the surge in global crude oil prices following the US-Iran conflict and India's rising energy costs had heightened concerns about economic growth.

With no clear signs of resolution in the US-Iran conflict, oil prices are rising once again. This is also affecting investor sentiment towards India. The Nifty 50 has risen about 8% from its recent March low, but it is still down about 8% so far this year. With this performance, it remains the second worst-performing market among major Asian stock markets.

If this situation continues, the historic streak of the Nifty 50 recording annual gains for 10 consecutive years could be broken. On the other hand, the improvement in investor sentiment towards Indonesia is attributed to the strong recovery of its stock market. The Jakarta Composite Index has risen more than 20% from its June low. The steps taken by Indonesia's central bank to stabilize the currency and the reduced likelihood of the country being classified as a frontier market by MSCI have also supported the market.