India tumbles from Asia’s top stock market pick to least favoured in just 3 months

Dubai: Just three months ago, India was the crown jewel of Asia’s stock markets. Now, it’s wearing a very different crown — that of the region’s least favoured, according to Bank of America’s (BofA) latest fund manager survey.

The August poll of 99 fund managers overseeing $183 billion in assets found 30% now underweight on India — more than any other Asian market. Thailand followed with 20%, and Malaysia with 10%. On the flip side, Japan climbed to the top spot, with China surging into second place.

The reversal is striking. In May, India displaced Japan as investors’ favourite Asian equity market, thanks to its perceived resilience during Washington’s early tariff moves. But that optimism has evaporated.

The trigger? US President Donald Trump’s decision to double tariffs on Indian goods to 50%, citing New Delhi’s purchases of Russian oil. The move soured sentiment toward the $5.2 trillion market and coincided with tepid corporate earnings and stretched valuations.

Foreign investors have withdrawn about $4 billion from Indian equities this quarter. By contrast, Chinese shares — buoyed by improved growth expectations and a weakening US dollar — outperformed Indian equities by eight percentage points in July, their best relative showing since February.

BofA’s survey reveals the broader context: investor appetite for emerging markets is surging. A net 37% of managers are overweight EM equities, the highest since February 2023, with nearly half calling them undervalued.

The MSCI EM index has returned more than 16% this year in dollar terms, outpacing developed markets’ 11% and the S&P 500’s 8.6%. Analysts at JPMorgan have even upgraded EM equities to “overweight,” citing improved growth prospects and attractive entry prices.

Still, not everyone is heading for the exit. Domestic investors have been buying the dip — Indian equity mutual funds posted record net inflows of ₹427 billion ($4.9 billion) in July, much of it from retail traders.

Institutional buyers in India are also expressing similar interest, betting that any foreign pullback will prove temporary.

With valuations still high and geopolitical tensions clouding the trade outlook, India faces a battle to regain its former status as Asia’s preferred market.

Whether this is just a short-term trade war casualty or the start of a longer detour in the region’s investment map will be one of the most-watched questions for the rest of 2025.