India Tops Investor Preferences in Asia-Pacific: A Shift in Market Dynamics

A May 2025 Bank of America survey reveals India as the top investment destination in Asia-Pacific, overtaking Japan and leaving China third. Investor sentiment shifted from 13% underweight in March to 42% overweight in May, driven by India's economic stability, diverse stock market, and government initiatives like the PLI scheme. While a US-China trade truce may temporarily impact fund flows, India's long-term prospects remain strong, bolstered by supply chain diversification trends.

A recent survey conducted by Bank of America among Asia-Pacific fund managers in May 2025 has revealed a significant shift in investor sentiment. India has emerged as the most favored investment destination, surpassing Japan, which now occupies second place. Meanwhile, China has trailed far behind, securing a distant third position.

This remarkable transformation in the perception of India as a prime investment market is illustrated by the data. According to the survey, fund managers went from being net 13% underweight on India in March 2025 to a striking net 42% overweight in May. For context, a "net overweight" indicates the proportion of investors who are bullish on a market minus those who are bearish.

Why India is Winning Investor Confidence

India's meteoric rise in investor preference stems from a combination of economic resilience, government policies, and favorable global trends. Just two months ago, in March, investor sentiment toward India was at a two-year low. Today, the country has ascended to the top, driven by several key factors:

1. Economic Stability Amid Global Uncertainty:

The Indian economy has proven to be one of the least impacted by the ongoing tariff wars. With a consistent position as the fastest-growing large economy worldwide, India has maintained its appeal despite global market volatility.

2. Diversified Stock Market:

India's stock market stands out for its diversity compared to other Asia-Pacific markets. This diversity not only enhances the market's resilience but also justifies the premium valuations that Indian stocks often command relative to their regional peers.

3. Proactive Government Policies:

Initiatives like the Production-Linked Incentive (PLI) scheme have played a pivotal role in positioning India as a manufacturing hub. This policy has successfully attracted foreign investments and boosted India's manufacturing exports, further strengthening its economic profile.

4. Beneficiary of the China+1 Strategy:

India's strategic position as a key beneficiary of the "China+1" supply chain diversification strategy has made it an attractive choice for investors looking to reduce reliance on Chinese markets. The survey underscores this, stating, "India emerges as the most favored market, perceived as a likely beneficiary of the supply chain re-alignments following the effects of tariffs."

Potential Challenges on the Horizon

While the outlook for India is overwhelmingly positive, there is a note of caution. The survey was conducted between May 2 and May 8, before the announcement of a trade truce between the United States and China. The easing of tariffs between the two economic giants could potentially lead to a reassessment of the Chinese market, causing a temporary shift in foreign fund flows from India to China.

However, experts suggest that this may be a short-term disruption. Over the longer term, the global trend of diversifying supply chains away from China is expected to persist, ensuring that India remains a key beneficiary. This structural shift is likely to sustain India's appeal as a preferred investment destination.

India's rise to the top of the investor preference list among Asia-Pacific markets is a testament to its economic resilience, strategic policies, and global positioning. While challenges like the US-China trade ceasefire could momentarily alter market dynamics, the long-term outlook for India remains robust. With a growing economy, diversified stock market, and favorable global trends, India is poised to continue attracting investor interest in the years to come.