Global money has been heading for the door in India this year, with net outflows around $25 billion as overseas funds pulled about $25 billion from Indian equities. According to Bank of America, a recent investor poll now puts India at the bottom of Asia's pecking order. The reversal comes after India was a top destination, and it has dragged foreign portfolio ownership on National Stock Exchange of India listings down to levels last seen 17 years ago. Funds at Janus Henderson Investors and Vantage Point Asset Management say they have reduced India exposure to zero over the past year or so, while Reed Capital Partners dumped its entire India position about a month ago as it cut equity risk.
According to Bank of America's September Global Fund Manager Survey, cash allocations rose to 3.9% from 3.5% in August, indicating that excessive bullishness seen over the summer is beginning to moderate. Investors remain optimistic about the global economy, with a net 8% expecting global growth to accelerate further, while 55% foresee a "no landing" scenario compared with 38% expecting a soft landing and just 2% anticipating a hard landing. However, a record 33% of investors believe companies are over-investing, highlighting concerns around the sustainability of the AI spending boom. Expectations for double-digit earnings-per-share growth over the next 12 months are at their highest since August 2021.
The biggest shift in the September survey was in perceived market risks, with "disorderly rise in bond yields" emerging as the biggest tail risk, cited by 33% of respondents, up from 27% in August and overtaking the AI bubble. Investors also expect a flatter yield curve for the first time since September 2022, while only 16% believe Treasury Secretary Scott Bessent's bond-buyback programme will reduce Treasury yields. Global semiconductors remained the most crowded trade, cited by 53% of investors, while 42% identified AI hyperscaler capital expenditure as the most likely source of a potential credit event.
Despite the foreign outflows, domestic institutions have cushioned the blow with about $60 billion of net buying this year, according to BSE data. That support, plus momentum around the country's data center build-out, has kept small caps comparatively resilient. Morgan Stanley says India is in a multi quarter growth upswing and projects the BSE Sensex will reach 89,000 by June next year, a 19% gain, with a bull case at 100,000. However, scrutiny is rising, with the National Stock Exchange having to scale back its long awaited IPO this week after pushback on pricing.
According to Sat Duhra of Janus Henderson Investors, where he is a portfolio manager, "Modi came in. He did some positive things that were done very well and within a reasonable timeframe, such as GST harmonization, the real estate reform, the bankruptcy court, but that hasn't solved the real issue," and the issue is jobs, trying to build manufacturing, and trying to gain FDI. The long standing case for India's consumer and services engine is now competing with the lack of a meaningful AI pathway and heavy reliance on imported oil. As per NDTV Profit, the current stockpiling behavior mirrors patterns seen during the 2007-08 food crisis when rice prices tripled despite record global production.
