A recent Bank of America (BofA) survey indicates a significant shift in investor sentiment towards the Indian stock market, which has plummeted from being the most favored to the least preferred Asian market in just three months. This downturn is primarily attributed to concerns surrounding President Trump's escalating tariffs.

The survey reveals that a substantial 30% of fund managers are now underweight on Indian equities. This contrasts sharply with the survey conducted in May 2025, where India had displaced Japan as the most favored market, buoyed by its perceived safe-haven status amidst Trump's initial tariff announcements. At that time, a net 42% of respondents favored India over other Asia-Pacific markets. Japan followed with 39%, while China was at the third position with 6% preference.

The change in sentiment underscores growing investor apprehension regarding Trump's decision to double tariffs on goods from India as a retaliatory measure for its purchases of Russian oil. According to strategists at BofA, Trump's announcement of a 50% tariff has adversely affected India. This contrasts with other markets in the region, including China, where the sentiment has become more enthusiastic.

Adding to the woes, trade tensions, weak corporate earnings, and high valuations have collectively prompted global funds to withdraw approximately $4 billion from Indian shares this quarter. Despite this outflow, domestic institutions and retail investors have attempted to cushion the impact by increasing their investments.

The BofA survey also highlights that India has slipped to fourth place among fund managers in the Asia-Pacific region. Only 10% of fund managers are currently overweight on India, compared to 32% for Japan, 19% for Taiwan, and 16% for South Korea. This indicates a shift in investor preference towards markets benefiting from the resurgent semiconductor cycle, such as Taiwan and South Korea. Furthermore, South Korea is gaining attention due to policy hopes under its new leadership.

The Indian IT services sector has experienced a sharp decline in investor interest, with BofA's India IT services indicator hitting a 20-month low. This suggests a decline in confidence in one of India's traditionally strong industries.

Despite the pessimistic outlook, there are some glimmers of hope. A recent survey showed that 58% of fund managers expect an earnings slowdown in the Asia-Pacific region, which is an improvement from 78% in the previous month. Moreover, current earnings forecasts are not viewed as overly optimistic, suggesting possible room for upward revisions.

While concerns about tariffs and global economic slowdown persist, corporate sentiment and guidance are showing signs of improvement.