India outshines Japan and China as top investment destination in Asia-Pacific

India is still the fastest-growing large economy in the world and its stock market is much more diversified than other Asia-Pacific markets.

The Bank of America survey of Asia-Pacific fund managers for May 2025 shows that India is the most favoured destination for investors, beating Japan to second place. China is a distant third.

The accompanying chart shows the transformation that has taken place in the perception of India as an investment destination among Asia-Pacific fund managers. From being a net 13 percent underweight on India in March 2025, investors are now a net 42 percent overweight. A net overweight indicates the number of people overweight a market minus those underweight it.

What are the reasons for the huge change in the perception of the Indian market? Back in March this year, India’s net weight was at a two-year low; now India is at the top of the heap. There is little doubt that the Indian economy’s standing as one of those least affected by the tariff wars has been a big reason. India is still the fastest-growing large economy in the world and its stock market is much more diversified than other Asia-Pacific markets, which is why valuations in the Indian market are always at a premium to its Asian peers. In addition, the attraction of India’s markets has been boosted by the government’s pro-active policies, such as the Production-Linked Incentive Scheme that is attracting investment in manufacturing in the country and increasing manufacturing exports from the country. India’s position as a key beneficiary of the China+1 trade has added to its allure for investors. The May survey says, ‘India emerges as the most favoured market, perceived as a likely beneficiary of the supply chain re-alignments following the effects of tariffs.’

There is one caveat, though. The survey was carried out between 2nd and 8th May, before the US-China trade cease fire, which brought down tariffs on trade between the two countries. That could lead to a re-assessment of the Chinese market, prompting a rotation in foreign fund flows from India to China. But that may be a temporary hiccup—in the longer run, diversification of supply chains away from China is likely to continue, and India will benefit from that trend.