Global Funds Remain Underweight On India Despite Growing Allocation

In a concerning trend for the Indian growth story, foreign portfolio managers have remained underexposed to the Indian markets even as allocations to the market have risen modestly in recent months, notes Goldman Sachs.

In a latest note, led by analyst Sunil Koul, the brokerage firm has noted that over the past three months, exposure to India rose the highest across markets within global Emerging Market (EM) funds.

That said, India remains one of the most underweight positions across global EM portfolio, trailing benchmark allocations by 280 basis points.

Goldman Sachs adds that India's allocation to the active mutual funds globally is hovering at a two-decade low.

On an aggregate basis, global funds across EM and broader global mandates are underweight on India by at least 215 bps.

The report adds that global ex-US funds, which manage $345 billion in assets globally, allocate just 1.4% to India versus the MSCI Benchmark weight of 5%. This accounts for a steep 365 bps underweight.

Similarly, emerging market funds, with $140 billion in assets, allocate 14.1% to India versus the benchmark tally of 16.9%.

Similar trend is seen even across global funds as the largest pool at $625 billion, holds only 0.3% of India versus the MSCI Benchmark weight of 1.8%, thus accounting for a 145 bps underweight.

This trend comes on the back of cautious sentiment in Indian markets, especially amid concerns over the US-India trade relationship and a less-than-ideal corporate earnings growth.

India has largely sought recovery through various moves that support liquidity, including a GST rationalisation that could significantly aid consumption.

The Reserve Bank of India has also cut interest rates by 100 bps since the appointment of Sanjay Malhotra as the RBI Governor at the end of 2024.

These initiatives are likely to aid consumption, thereby supporting the market through increased liquidity.

India's GDP provided a positive surprise by chalking in a growth of 7.9%, well above expectations.