Global investors are once again turning their gaze towards India, according to the latest Asia Fund Manager Survey (FMS) from Bank of America. The survey reveals that India has regained favor, now holding a mild overweight rating among fund managers. This marks a significant shift from a neutral stance in November, positioning India as a key diversification play in the region.
India's Steady Climb in Investor Preference
The December survey, which involved 238 panelists managing a collective $550 billion in assets, shows a clear change in sentiment. Currently, 10% of fund managers report being net overweight on India, a notable increase from 0% just a month prior. This ascent makes India the third most preferred market in Asia, trailing only Japan and Taiwan. The report suggests India's appeal lies in its role as a diversification option against the artificial intelligence (AI)-heavy markets of North Asia, supported by a favorable economic environment.
Bank of America analysts noted that India has slowly climbed back to mild overweight, likely serving as a diversification play against AI-driven markets. This Goldilocks scenario of rising global growth and low inflation expectations across Asia (excluding Japan) is seen as a tailwind for Indian equities.
Contrasting Fortunes: Japan Leads, China Lags
While India gains ground, the regional landscape shows stark contrasts. Japan continues to be the top choice for investors in Asia. Optimism persists around policy influences, with short-term market dips viewed as healthy consolidations. Investors in Japan are favoring banks and semiconductors, with the latter sector benefiting directly from the AI trend.
On the other hand, China has dropped to an underweight rating. The report highlights stalled growth momentum, noting that while the long-term structural view is no longer grim, valuations are no longer supportive. Investors are awaiting concrete signs of stimulative policy before increasing their exposure, as household risk appetite wanes and shifts towards savings.
Recapping India's Strong Year in Investor Sentiment
This latest rating reinforces a positive year for India's perception among global fund managers. Earlier in May, India was ranked as the most preferred equity market in the Asia Pacific region in BofA's survey, even overtaking Japan. That top spot was attributed to positive sentiment around infrastructure development, strong consumption trends, and ongoing supply chain realignments.
Bank of America had previously pointed out that India emerges as the most favoured market, perceived as a likely beneficiary of supply chain realignments following tariff effects. The current survey indicates that this foundational optimism remains, albeit in a more competitive regional field where Japan has regained leadership.
The overall survey indicates that while investors across Asia maintain a positive market outlook, they have tempered their return expectations. Enthusiasm for outsized gains is being restrained by valuations that exceed long-term averages, despite a strong rebound in corporate profits.
