The brokerage favours banks, industrials and consumer discretionary stocks in India. It cut China to neutral, citing a lack of catalysts for a sustained rise in valuations.
Key Highlights
- HSBC raised Indian equities to overweight from neutral after a prolonged correction.
- The brokerage expects earnings momentum to improve as the pace of earnings downgrades slows.
- HSBC said only 22% of global emerging-market funds are overweight India, leaving room for allocations to rise.
- Its preferred segments include banks, capital goods, cement, ports, electronics manufacturing services, retailers and automakers.
- HSBC warned that persistently high energy prices could lead to modest earnings downgrades in the coming quarters.
New Delhi, Nov 10 — HSBC upgraded Indian equities to overweight from neutral, citing resilient corporate earnings, improving credit growth and more reasonable valuations after a prolonged correction. The brokerage downgraded China to neutral from overweight, saying it saw few catalysts for a sustained rise in valuations there.
In a report authored by Herald van der Linde, HSBC’s head of equity strategy for Asia Pacific, the brokerage said Indian stocks had become more attractive relative to other emerging markets after years of falling valuations and weaker returns. It singled out large-cap stocks, where it now sees more reasonable valuations.
HSBC expects corporate earnings momentum to improve as the pace of downgrades slows. It also pointed to strong credit growth and policy measures aimed at supporting economic growth and the rupee. The brokerage said persistently high energy prices could still lead analysts to trim earnings estimates in the coming quarters, though it expects any such cuts to be modest and to have a limited effect on investor sentiment.
India offers diversification as AI stocks dominate Asian markets
HSBC said India could help investors diversify as artificial intelligence-linked stocks account for a growing share of Asian equity markets. It also noted that only 22% of global emerging-market funds currently hold a larger allocation to India than their benchmarks do. The brokerage sees room for more funds to increase their exposure.
Banks and industrials among preferred sectors
HSBC favours banks on an improving growth outlook. Within industrials, it sees opportunities in capital goods, cement, ports and electronics manufacturing services.
In consumer stocks, the brokerage prefers discretionary businesses to staples, naming retailers and automakers among its preferred segments. It also sees growth opportunities in insurers and hospitals despite recent regulatory uncertainty.
Editorial note. The supplied copy cuts off mid-sentence in the risk section. This draft includes the risks described in the complete portion.
