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In the global financial market, there has been a major change in the attitude of foreign portfolio investors (FPIs) and global fund managers regarding the Indian stock market. According to the latest Asia Fund Manager Survey released by Bank of America (BofA), India has become the least favorite equity market for fund managers in the Asia-Pacific region. 32 percent of fund managers included in this monthly survey have adopted a ‘Net Underweight’ stance towards Indian stocks. This simply means that global fund managers have significantly reduced their capital allocation to the Indian market as compared to the benchmark index in their total portfolio. Till now Indonesia was at the lowest position in this list, but in the latest data, India has overtaken Indonesia and taken the position of least favorite market in Asia.
Opinion of fund managers worth $272 billion in BofA survey
A total of 98 leading institutional fund managers and analysts, who manage total assets of over $272 billion (approximately ₹22.8 lakh crore) globally, participated in this detailed survey conducted between August 7 and August 13, 2026. According to the survey results, while the underweight perception towards Indonesia improved to 27% from 32% last month, the negative perception towards India increased to a net level of -32%. In this list, Taiwan (+55% overweight) and Japan (+50% overweight) remain the most preferred investment destinations of fund managers.
Lack of Artificial Intelligence (AI) and semiconductor exposure became the biggest concern
According to the fund managers included in the survey, the main reason for the lack of enthusiasm towards India is the lack of direct exposure of companies related to Artificial Intelligence (AI) and hardware-semiconductor supply chain in the domestic stock market. At present, global institutional investors are investing more of their capital in those markets which are directly related to the global AI boom and chip manufacturing. Due to the presence of big semiconductor companies like Taiwan (TSMC) and South Korea (Samsung, SK Hynix), foreign money is flowing rapidly into these markets. In contrast, India’s IT sector is primarily dependent on software services, which does not see any immediate direct hardware benefits from the AI revolution.
High valuations and slow pace of economic reforms also increased concerns
The second major reason behind fund managers underweighting India is the expensive valuations of Indian stocks and the slow pace of reforms. Even though Indian companies’ June quarter financial results have shown improvement, the P/E multiples of stocks in the mid-cap and small-cap segments are trading well above the historical average. Along with this, 18% of foreign investors have also expressed concern about the slow pace of land reforms, full implementation of labor codes and privatization.
Current ranking of countries in Asian markets
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Taiwan: +55% Net Overweight (No. 1 Preferred Market)
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Japan: +50% Net Overweight (No. 2 Preferred Market)
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South Korea: +23% net overweight
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Malaysia and New Zealand: 0% neutral
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China: -18% net underweight
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Philippines: -23% net underweight
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Indonesia: -27% net underweight
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India: -32% net underweight (least preferred in Asia)
Strong support from domestic DIIs and retail investors
Even though global fund managers are taking a cautious and underweight stance on India, domestic institutional investors (DIIs) and retail SIP inflows have kept the market firmly under control. Due to record SIP capital coming into mutual funds every month, foreign selling is not having the same devastating impact on the market as before. Despite this, if risk-off sentiment continues globally, the upside in large-cap stocks may remain limited for some time.
Strategy for local and retail investors in Tier-2, Tier-3 cities
For new investors from tier-2 and tier-3 cities like Lucknow, Kanpur, Varanasi of Uttar Pradesh, Jaipur of Rajasthan, Indore of Madhya Pradesh and Ahmedabad and Surat of Gujarat, this report is not a signal to panic but to rebalance the portfolio wisely. When foreign investors heavily underweight a market, historically those same markets have also rebounded rapidly when valuations are right. In such a situation, investors are being advised to continue investing through SIP in a phased manner only in companies with large-cap and strong fundamentals.