The Indian stock market, which had delivered positive returns for 10 consecutive years, is struggling to sustain momentum in 2026 amid an increasingly unfavourable market environment, marked by persistent selling from overseas investors, elevated crude oil prices, low exposure to AI, a record-low rupee and subdued domestic market drivers.
The Indian stock market has also been facing pressure from stretched valuations and heightened global uncertainty, with geopolitical tensions and higher global bond yields adding to the risk-off mood.
Even though the June quarter results came in ahead of analysts’ estimates, they failed to revive investor sentiment, as investors appear to be finding better opportunities elsewhere in Asian markets, leaving domestic equities increasingly reliant on retail inflows.
While the pressure has been largely concentrated in Indian equities, other major Asian markets have continued to perform strongly.
The US market has scaled fresh record highs, while South Korea’s benchmark has surged nearly 60%, with the rally largely led by semiconductor, memory and technology stocks as the artificial intelligence (AI) theme continues to fuel investor optimism.
Although Indian equities began the year on a firm note, with the Nifty 50 scaling a fresh record high of 26,373, optimism quickly faded following tensions in Venezuela, which were further compounded by the US war with Iran. The conflict has now extended into its sixth month, with no near-term peace deal in sight.
India becomes Asia’s least preferred market
The sustained weakness has made India the least-preferred stock market, replacing Indonesia in a survey of fund managers conducted by Bank of America Corp., signalling increasing caution toward a market that has been among the world’s worst performers this year, Bloomberg reported.
The lack of a clear AI exposure remains the key concern for Indian equities, with weak growth emerging as the next most important risk, according to the survey, Bloomberg reported.
The survey showed that 32% of respondents were net underweight on India. Lack of reforms and high valuations also emerged as reasons for the bearish outlook on Asia’s fourth-largest equity market.
In contrast, sentiment improved for Indonesia, with 27% of fund managers saying they were net underweight on the market, compared with 32% in July. Taiwan and Japan remain investors’ most preferred regions.
A total of 98 panelists, managing $272 billion in assets, responded to the survey’s questions between August 7 and August 13, according to Bloomberg.
The survey findings align with the decline in Indian stocks over the past two weeks despite an improving earnings outlook, suggesting investors remain wary of the market even as its fundamentals strengthen.
Global funds have purchased more than $4 billion in local stocks this quarter — the most among regional emerging markets — after record outflows in the first half of the year, data compiled by Bloomberg showed.
Earnings for benchmark NSE Nifty 50 members jumped 18% from a year earlier in the most recent three-month period, ahead of Motilal Oswal Financial Services Ltd.’s estimate of 10% growth.
Crude prices, growth concerns keep Indian stocks under pressure
Indian stocks were last termed the least preferred in the BofA poll in May, as the country faced pressure on growth from rising energy costs following the US-Iran war, which triggered a rally in global crude oil prices. With no sign of progress toward resolving the conflict, energy prices are climbing again, weighing on investor sentiment.
While the Nifty 50 has jumped 8% from a recent low in March, it remains the second worst-performing major market in Asia this year, having lost 8%. It is on track to snap a historic run of 10 straight years of annual gains.
Meanwhile, the improvement in sentiment toward Indonesia reflects the more than 20% rally in the benchmark Jakarta Composite Index from its June low, following the central bank’s measures to stabilise the currency and fading fears of a downgrade to frontier-market status by MSCI Inc.
(With inputs from Bloomberg)
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