The Bank of America-Merrill Lynch (BofA-ML) survey of global fund managers for January shows that exposure to India is around four standard deviations above the historical mean among global emerging market investors.

For Asia-Pacific investors, India exposure is more than 2.5 standard deviations above the historical mean. No other emerging market shows positioning so high relative to its history. Never has India been more loved by investors. And why not—oil prices are down, commodity prices are lower, current account deficit has narrowed sharply, rupee is stable, political environment is favourable and reforms are underway.

That said, the fact that exposure to India is so high also restricts the upside for the Indian market. The BofA-ML survey shows that cash positions have come down from 5% in December to 4.5% in January, although 4.5% still gives a ‘buy’ signal, according to the survey. The good news is that funds are underweight emerging markets as a whole, 1.7 standard deviations below the long-term average, so the Indian markets, too, will benefit if that changes.

Here’s the bottom line: “if oil boosts non-US growth in next two months, investors will win; if not/US growth stumbles, a large risk-off asset allocation shift is likely."

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