The appeal of Indian equities within the Asian investment landscape is diminishing at an accelerating pace. As the artificial intelligence theme regains prominence as a market focus, capital continues to pour into North Asian markets with higher technology weightings, such as South Korea and Japan. Consequently, Indian stocks have not only significantly underperformed regional peers in terms of gains but have also become the most underweight market in Asian fund managers' portfolios.

A recent survey by BofA Securities revealed that Indian equities now represent the market with the lowest overweight percentage among Asian fund managers. The survey, conducted from April 2nd to April 9th, covered 90 participants managing assets totaling $247 billion.

Simultaneously, Goldman Sachs initiated a "relative value trade" this week, recommending a long position on South Korea while simultaneously taking short positions on India, the Philippines, and Thailand.

This divergence in capital allocation is clearly reflected in market performance. Although India's Nifty 50 index has rebounded over 8% this month, this gain pales in comparison to the respective advances of at least 15% for the benchmark indices of South Korea and Japan. The MSCI Asia Pacific Index has also risen more than 12% over the same period. Analysts point out that India lacks pure-play AI concept stocks. Furthermore, as an oil import-dependent economy, it remains more vulnerable to oil price shocks stemming from Middle East conflicts. These two structural disadvantages are likely to cause continued underperformance.

The rising attractiveness of North Asian technology sectors has led to India becoming the most significantly underweight market. The resurgence of the AI theme is reshaping the pattern of capital flows within Asia. As investor enthusiasm for AI-related supply chains intensifies, markets with substantial technology sectors, like South Korea and Japan, have emerged as the primary beneficiaries. Their benchmark indices have each climbed no less than 15% this month, significantly outperforming the broader Asia-Pacific market.

In contrast, India has been largely absent from this technology-driven rally. The BofA Securities survey results indicate that India has become the most underweight equity market in Asian fund managers' holdings, reflecting deepening concerns about the country's economic fundamentals. Goldman Sachs's relative value trade strategy further corroborates this assessment—while advocating long positions in North Asian tech markets, it lists India as one of the short targets.

The logic behind India's stock market underperformance is clear, driven by two overlapping factors. First, the Indian market lacks genuine AI concept stocks, preventing it from directly benefiting from the current global reallocation of technology capital. Second, as an economy heavily reliant on oil imports, India faces greater macro-fiscal pressures against the backdrop of persistent Middle East conflicts and resulting oil price pressures.

These two factors collectively weaken India's relative attractiveness within Asian asset allocation. Even though the Nifty 50 index has rebounded more than 8% from its lows this month, this gain remains on the lower end within the Asia-Pacific region and is unlikely to reverse the trend of persistent capital outflows.