New data from Jefferies suggests a significant disconnect between India's economic potential and global portfolio allocation. After evaluating 70 emerging market (EM) funds managing a combined $320 billion, analysts found that 61% of these portfolios remain underweight on Indian stocks.
This defensive stance persists even as foreign institutional investors (FIIs) have been offloading Indian assets at record rates since September 2024. Market observers point to a combination of expensive valuation metrics and broader uncertainty surrounding the current AI and DRAM semiconductor cycles as primary deterrents for large-scale capital deployment.
While traditional growth-focused investors remain hesitant, there is an emerging shift in sentiment. Capital is increasingly flowing toward "hard-asset" themes, signaling that while India’s premium pricing is a hurdle, the appetite for infrastructure and physical asset exposure remains a potential pivot point for future inflows.
Investors are advised to watch for signs of valuation cooling. Until the valuation-to-growth ratio becomes more favorable, the consensus among major global funds remains one of cautious observation rather than aggressive entry.
