Why India Just Became Asia’s Least-Favored Stock Market - And What Trump’s Tariffs Have to Do With It

India has suffered a dramatic fall in global investor sentiment, moving from fund managers’ top Asian stock market pick in May to their least-preferred in August, according to Bank of America Corp.’s latest survey. The shift comes amid escalating trade tensions triggered by US President Donald Trump’s tariff escalation.

In the survey, 30% of fund managers said they were underweight on India, the highest among Asian peers, followed by 20% for Thailand and 10% for Malaysia. Japan emerged as the most favoured market, with China in second place. A total of 99 panellists managing $183 billion responded to the survey’s regional questions.

Trump’s Tariffs Hit Indian Equities
The sharp sentiment reversal follows Trump’s decision to double tariffs on Indian goods to 50%, a penalty linked to New Delhi’s purchases of Russian oil. “India is affected by President Trump‘s announcement of 50% tariffs,” Bank of America strategists, including Ritesh Samadhiy, noted in an August 12 report.

While China’s outlook among investors has improved, India has been hit by trade angst, weaker earnings, and stretched valuations. This has prompted foreign investors to pull nearly $4 billion from Indian equities this quarter.

Domestic Investors Step In
Despite the foreign exodus, domestic institutions and retail traders have cushioned the blow. Mutual funds focused on Indian equities saw record net inflows of ₹427 billion ($4.9 billion) in July, according to the Association of Mutual Funds in India. These flows, largely from individual traders, have provided some stability.

Read More - US Treasury Secretary Calls India ‘Recalcitrant’ In Trade Talks

Worst Losing Streak Since Covid Onset

“Trump’s harsh tariffs and the straining of relations between US and India have impacted market sentiment,” said V K Vijayakumar, chief investment strategist at Geojit Investments. Tepid earnings and high valuations, he added, have “emboldened the bears to increase short positions.”

Still, Indian equities posted their worst weekly losing streak since the start of the Covid-19 pandemic last week, lagging behind major Asian peers in 2025. Chinese shares outperformed Indian stocks by about eight percentage points in July, their widest gap since February.

(With Inputs From Bloomberg)