India is now the least-favoured stock market in Asia, the Bank of America Corp noted in its latest survey. It replaced Indonesia at the bottom. The slide comes despite India remaining one of the world’s fastest-growing economies, according to an April report by the World Bank Group. Investors are increasingly questioning where the country fits into the next big technology boom. The Bank of America Corp. Survey, reported by Bloomberg, found that a lack of exposure to artificial intelligence was fund managers’ single biggest concern about Indian equities. The 98 respondents, who together oversee a combined US$272 billion in assets, were polled between 7 and 13 August.
For years, India was regarded as one of the strongest structural investment stories in emerging markets. The question now is whether investors have been paying too much for that growth story, and whether Indian companies are keeping pace with the themes currently driving global markets.
A Contradictory Picture
Interestingly, India has failed to enthuse a positive response despite a positive growth outlook. The International Monetary Fund’s July World Economic Outlook update put India’s 2026 growth at 6.4 per cent. China’s growth, by contrast, is expected to slow to 4.6 per cent, weighed down by higher oil prices and structural problems including weak domestic demand and a troubled property sector.
Vietnam and Malaysia are forecast to grow at 7.5 per cent and 4.7 per cent respectively, while South Korea’s economy is expected to expand by 2.6 per cent.
Geopolitical and Trade Headwinds
Slower global trade is compounding the problem. The IMF expects global trade volume growth to fall from 5 per cent in 2025 to 3.5 per cent in 2026, before recovering to 4.3 per cent in 2027, as the ongoing war between the US and Israel and Iran keeps the Strait of Hormuz under repeated attack and disruption. Tariffs, alongside shifting supply chains and trade policies, are also pushing companies to rethink where they source and manufacture goods.
The IMF report warns these disruptions could push global inflation up by 4.7 per cent. Rising fuel and energy prices are a particular risk for India, which imports the bulk of its crude oil; a prolonged spike could widen the import bill and pressure the rupee. Still, India’s strong domestic demand offers a meaningful buffer against these external shocks.
Valuations Under Pressure
Indian stocks have long traded at a premium, underpinned by strong growth prospects, a large consumer market and relatively stable institutions. But months of weak performance have made that premium harder to justify. As of August 19, the Nifty and Sensex were down 7.9 per cent and 9.8 per cent respectively. Between October 2024 and June 2026, foreign investors sold over US$50 billion of Indian equities, and India’s weighting in the MSCI Emerging Markets Index fell from 21 per cent in September 2024 to below 12 per cent.
The slump may prove temporary, though: foreign investors are already trickling back, having poured $2.11 billion in July, and $1.35 billion in the first week of August. Indonesia’s TurnaroundIndonesia, previously Asia’s least-favoured market according to the same Bank of America survey, is now looking up. The economy is expected to grow 5 per cent in 2026, and foreign investors are being drawn in by lower valuations and the prospect of policy-led growth – a trend the IMF has outlined in its recent country assessment. Higher public spending, resilient domestic consumption and investment, and the government’s sovereign wealth fund, Danantara, are all expected to support the economy further.
China’s AI Edge
China’s economy may currently be weaker, but it holds something India still lacks: a concentrated, investible artificial-intelligence and technology story. Foreign investors have been drawn to Chinese technology stocks as Beijing has pushed domestic AI capability and semiconductor self-sufficiency through 2026. AI-linked names such as Cambricon Technologies, Shandong Zhongji Electrical and ChangXin Memory Technologies (CMXT) have all soared. Investing in China, as the Financial Times has noted, opens the door to AI, semiconductors, electric vehicles and advanced manufacturing – the themes now central to the global investment narrative. India, by comparison, remains heavily reliant on IT, financial services and consumer companies.
Still Pricey, Still Low-Yield
Despite the fall in the Sensex and Nifty, Indian equities remain relatively expensive compared with many emerging markets, including those in the EU, while dividend yields stay comparatively low – a gap Reuters has tracked as Indian stocks head for their first yearly drop in over a decade.Analysts, however, at Carnelian Asset Management & Advisors, a Mumbai-based portfolio management/asset management firm, have reported that one could expect Nifty 500 earnings to grow 14-15 per cent annually through 2027 and 2028. Indian companies have also shown earnings resilience, and domestic consumption remains relatively strong.
