Bank of America Global Research has raised its FY27 earnings estimates for sectors that together account for 71% of the Nifty's market capitalisation, citing better-than-expected results in the June quarter. According to the brokerage's note, the earnings upgrades reflect improving underlying growth trends. High-frequency indicators such as GST collections, direct tax receipts, credit growth and power demand have remained firm despite multiple macro headwinds. Early results for the June quarter, covering companies that represent roughly half the Nifty's market value, also pointed to resilience even at the peak of the West Asia conflict. On the back of this data, BofA's economics team has upgraded its macro forecasts, with the equity strategy team lifting its Nifty FY27 earnings growth estimate to 10% from 8.5% earlier, expecting the index to deliver 10% earnings growth in FY27 and 15% in FY28. Latest earnings data shows NSE Nifty 50 members' earnings jumped 18% from last year in the most recent three-month period, ahead of Motilal Oswal Financial Services Ltd.'s estimate of 10% growth, though strong earnings have not been enough to revive broad foreign investor confidence as investors focus on future growth potential and India's exposure to global technology trends.
India's stock market has replaced Indonesia to become Asia's least-favoured stock market among fund managers surveyed by Bank of America, with 32% of respondents net underweight on Indian equities. The survey received responses from 98 fund managers overseeing a combined $272 billion in assets, with responses collected between August 7 and August 13. According to the latest survey findings, the lack of a clear AI exposure remains the key concern for Indian equities, with weak growth emerging as the next most important risk. The survey, conducted among fund managers overseeing $272 billion in assets, showed that investor concerns extend beyond valuations to India's limited participation in the global artificial intelligence investment cycle, slower growth expectations and concerns over reforms. By comparison, South Korea's stock market has gained nearly 60%, supported by strong semiconductor and technology stocks benefiting from the AI boom, while Taiwan and Japan also remained among the preferred Asian markets. This represents a significant shift from May when India was last ranked as the least-preferred market, with rising energy costs pressuring economic growth following the US-Iran war and surge in global crude prices.
The survey reveals that 28% of fund managers cite the lack of a clear AI play as their key concern about India, up from 18% in July, making it the biggest concern about Indian equities. Weak growth was the second-biggest concern at 20%, followed by lack of reforms at 16%. High valuations were cited by 4%, while a depreciating currency was a concern for 8%. As many Asian markets benefit directly from the AI investment cycle, fund managers appear to be questioning where India fits into that theme. The survey shows that 59% of fund managers believe the positive impact of AI on equities is only partially priced in, while another 32% believe it is mostly not priced in. However, investors are increasingly protecting themselves against a reversal, with 59% saying they are hedging AI downside risk by rotating into value, cyclical and defensive sectors, more than twice July's level. Nearly two-thirds of investors said they need clearer evidence of AI monetisation before increasing their exposure to AI-related stocks, with 64% saying evidence of AI monetisation or revenue generation would most increase their conviction to add to AI stocks. India's relatively limited number of large companies directly benefiting from the AI hardware and infrastructure boom has become an additional concern, as markets such as South Korea and Taiwan have a much stronger presence in semiconductors and other areas directly connected with global AI spending.
Despite improving earnings outlook, India has replaced Indonesia as Asia's least-preferred stock market among fund managers surveyed by Bank of America, with 32% of respondents net underweight on Indian equities. The survey results come at a time when Indian equities have declined over the past two weeks despite a brighter earnings outlook, indicating that investors remain cautious even as the underlying fundamentals of the market improve. Foreign funds have nevertheless purchased more than $4 billion worth of Indian equities during the current quarter, giving India the strongest foreign inflow among regional emerging markets after heavy selling during the first half of the year, following data compiled by Bloomberg. The Nifty 50 is currently around 8% above its March low, but remains approximately 8% lower for the year. If the index ends 2026 in negative territory, it would bring an end to India's decade-long run of positive annual returns. The renewed buying has not yet translated into a broad change in investor sentiment, with much of the support for Indian equities continuing to come from domestic investors and retail participation, which have helped cushion the impact of foreign outflows. Meanwhile, sentiment for Indonesia improved with 27% of fund managers net underweight, compared with 32% in July, following the central bank's currency stabilisation measures and the more than 20% rally in the benchmark Jakarta Composite Index from a June low.
The brokerage continues to see 9% upside for the Nifty in its base case to 26,200 by December 2026, assuming no further expansion in valuations. In a bear case that factors in simultaneous risks from higher crude, weaker monsoon, rate hikes, rupee depreciation and AI disruption, it sees 8% downside to 22,000. The upgrades reflect the resilience demonstrated by Indian markets even during challenging global conditions, with underlying economic indicators remaining firm despite multiple headwinds. However, elevated crude oil prices remain a major concern for Indian equities, as India relies heavily on imported energy, with a prolonged rise in oil prices increasing pressure on the country's import bill, inflation and current account balance. The weaker rupee is also making overseas investors more cautious, as currency depreciation can reduce returns for foreign investors when their investments are converted back into dollars, even if Indian shares remain relatively stable in local currency terms. Geopolitical tensions, including the continuing US-Iran conflict, have further complicated the market environment and increased uncertainty around oil prices and global risk appetite. The survey essentially points to three baskets that global fund managers are favouring: AI infrastructure (Taiwan, semiconductors, tech hardware, memory, connectivity, data centres and power), defensive/value exposure (healthcare, banks, financial services, telecom and energy) and Japan (where investors are combining exposure to banks and semiconductors with expectations of stronger earnings and monetary-policy normalisation).
