Indian Stocks Now EM Investors’ Biggest Underweight, Nomura Says

Indian equities have become the largest underweight position for emerging market investors, according to Nomura Holdings Inc., following a significant re-allocation of capital in July. Nomura's analysis reveals that 71% of EM funds were underweight India at the end of July, a notable increase from 60% at the end of June, as investors shifted focus to peers like Taiwan, Hong Kong/China, and South Korea.

Analysis

A significant shift in institutional positioning has established Indian equities as the largest underweight holding for emerging market (EM) investors, according to a recent analysis by Nomura Holdings. The report highlights an accelerated rotation out of India during July, with the percentage of large EM funds underweight on the country increasing to 71% from 60% at the end of June. This reallocation of capital was not a broad exit from the region but a specific tactical shift, with funds flowing directly into Asian peers including Taiwan, Hong Kong/China, and South Korea. The data indicates a strong bearish sentiment and substantial capital outflow pressure on the Indian market from key institutional managers, suggesting concerns about relative valuation or near-term growth prospects compared to other Asian markets.

Key Decisions for Investors

• Investors with long exposure to Indian equities should be aware of the significant headwind from institutional outflows and monitor for signs of continued underperformance relative to other Asian EM benchmarks.
• The pronounced rotation into Taiwan, Hong Kong/China, and South Korea suggests these markets are currently viewed more favorably, warranting analysis for potential relative value trades or tactical allocation adjustments.
• Given that 71% of EM funds are now underweight India, this represents a crowded trade, and investors should be alert to any catalysts that could trigger a reversal, as a sharp unwind of these positions could lead to a rapid rebound.