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India Stock Market Loses Favor: BofA Survey Reveals Investor Shift

Indian Stocks Now Least Preferred in Asia: BofA Survey Highlights Shifting Investor Sentiments

In a striking reversal of fortunes, Indian equities have plummeted to the bottom of the preference list among Asian markets, according to the latest insights from Bank of America's (BofA) monthly fund manager survey. Once hailed as a beacon of growth and resilience in the emerging markets landscape, India's stock market is now grappling with a wave of investor skepticism, driven by a confluence of high valuations, economic headwinds, and geopolitical uncertainties. This development marks a significant shift from just a few quarters ago when India was often touted as the darling of global investors seeking exposure to high-growth economies.

The BofA survey, which polls fund managers overseeing billions in assets across Asia, reveals that a net 18% of respondents are now underweight on Indian stocks, making it the least favored market in the region. This underweight position contrasts sharply with markets like China and Taiwan, which have seen renewed interest amid expectations of stimulus measures and technological advancements. For instance, China has emerged as a top pick for many, with fund managers citing potential policy easing and undervalued assets as key attractions. The survey underscores how India's premium valuations—trading at multiples significantly higher than regional peers—have become a deterrent, especially as corporate earnings growth slows and macroeconomic indicators point to softening demand.

Delving deeper into the reasons behind this downturn, several factors stand out. India's economy, while still projected to grow at around 6-7% annually, has shown signs of deceleration. Recent data from the Reserve Bank of India (RBI) indicates moderating industrial production and a dip in consumer spending, exacerbated by persistent inflation pressures. The RBI's cautious stance on interest rates, maintaining a repo rate of 6.5% amid global monetary tightening, has further squeezed liquidity and dampened market enthusiasm. Moreover, the upcoming general elections in 2024 add an layer of uncertainty, with investors wary of potential policy shifts or political instability that could disrupt economic reforms.

Fund managers in the BofA poll expressed concerns over India's fiscal deficit and current account dynamics, which, although improved from pandemic lows, remain vulnerable to oil price volatility and global trade disruptions. The rupee's relative stability against the dollar has not fully alleviated fears of capital outflows, particularly as foreign institutional investors (FIIs) have been net sellers in recent months. Data from the National Stock Exchange (NSE) shows that FIIs offloaded over $2 billion worth of Indian equities in the last quarter alone, redirecting funds towards cheaper alternatives in Southeast Asia and North Asia.

Comparatively, other Asian markets are benefiting from this reallocation. Taiwan, buoyed by its semiconductor industry and ties to global tech supply chains, has seen a net overweight of 25% among surveyed managers. South Korea follows closely, with its export-driven economy gaining traction amid a rebound in global demand for electronics and automobiles. Even Japan, traditionally viewed as a mature market, is attracting attention due to corporate governance reforms and a weakening yen that boosts export competitiveness. China, despite its own set of challenges including real estate woes and regulatory crackdowns, is perceived as undervalued, with the Shanghai Composite trading at forward price-to-earnings ratios well below India's Nifty 50, which hovers around 22 times earnings.

This shift in sentiment is not isolated to BofA's findings; it aligns with broader market trends observed by other institutions like Morgan Stanley and JPMorgan, which have recently downgraded their outlooks on Indian stocks. Analysts point to the Nifty's 20% rally over the past year as having priced in much of the optimism, leaving little room for error if growth disappoints. Sectors like information technology and consumer goods, which drove much of India's market gains, are now facing headwinds from global slowdowns and domestic competition. For example, IT services giants have reported slower order inflows due to spending cuts by U.S. clients, while fast-moving consumer goods (FMCG) companies grapple with rural demand weakness amid uneven monsoon patterns.

Looking ahead, the survey suggests that a turnaround for Indian stocks could hinge on several catalysts. A decisive election outcome favoring continuity in pro-business policies could restore confidence. Additionally, if the RBI signals rate cuts in response to cooling inflation—currently around 5-6%—it might ease borrowing costs and stimulate investment. Global factors, such as a pivot by the U.S. Federal Reserve towards easing, could also stem capital flight from emerging markets like India. However, without meaningful corrections in valuations or a pickup in earnings momentum, fund managers indicate they may remain sidelined.

The broader implications for India's financial ecosystem are profound. As the world's fifth-largest economy, India's stock market capitalization exceeds $4 trillion, making it a critical barometer for global investor appetite in emerging markets. A prolonged period of underperformance could impact capital inflows, which are vital for funding infrastructure projects and corporate expansions. Domestic mutual funds and retail investors, who have been the backbone of recent market resilience, might face increased volatility if foreign sentiment remains bearish.

In essence, the BofA survey paints a cautionary tale for India, highlighting the perils of overvaluation in a multipolar world where investors have ample choices. While India's long-term structural advantages—such as a young demographic, digital transformation, and manufacturing push under initiatives like 'Make in India'—remain intact, the immediate outlook calls for recalibration. Investors are advised to monitor key economic releases, including GDP figures and corporate earnings in the coming quarters, to gauge any signs of revival. For now, though, India's fall from grace in Asian investment preferences serves as a reminder that no market is immune to the ebb and flow of global capital sentiments.

This analysis reflects a snapshot of evolving market dynamics, where India's narrative of unbridled growth is being tempered by realism. As fund managers recalibrate their portfolios, the onus falls on policymakers and corporates to deliver on reforms that can reignite investor interest and position India once again as a premier destination in Asia's investment landscape. (Word count: 912)

Read the Full The Financial Express Article at:
[ https://www.financialexpress.com/market/indian-stocks-now-least-preferred-in-asia-bofa-3945777/ ]