HSBC has upgraded Indian equities to ‘overweight’ from ‘neutral’, citing resilient corporate earnings, improving credit growth and more reasonable valuations after a prolonged market correction. The brokerage has simultaneously downgraded Chinese equities to ‘neutral’ from ‘overweight’.
New Delhi, November 10 — HSBC has turned more bullish on Indian equities, upgrading the market to ‘overweight’ from ‘neutral’ as improving earnings prospects, strong credit growth and more attractive valuations strengthen India’s investment case.
The brokerage said India’s relative attractiveness has improved following a multi-year valuation reset and significant underperformance against other emerging markets.
HSBC’s Asia-Pacific equity strategy team, led by Head of Equity Strategy for Asia Pacific Herald van der Linde, expects India’s corporate earnings momentum to improve, with the pace of earnings downgrades beginning to moderate.
Large-cap stock valuations have also become more reasonable, while policy measures supporting economic growth and the rupee provide additional support to the market.
Banks, autos and industrial stocks preferred
HSBC is particularly positive on banks, citing an improved growth outlook.
Within industrials, the brokerage sees opportunities in capital goods, cement, ports and electronic manufacturing services.
For consumption stocks, HSBC prefers discretionary companies over consumer staples, with retailers and automobile manufacturers among its preferred segments.
The brokerage also sees growth opportunities in insurance companies and hospitals, despite recent regulatory uncertainty.
India offers diversification from AI-heavy markets
Another factor supporting India’s investment case is its relatively diversified stock market.
HSBC noted that Asian equity markets are becoming increasingly dominated by artificial intelligence-linked stocks, while India provides investors with exposure to a broader range of sectors.
Only 22% of global emerging-market funds are currently overweight India, according to the brokerage.
This suggests there is room for international investors to increase their exposure to Indian equities.
High oil prices remain a risk
HSBC, however, highlighted several risks to the Indian market.
Persistently high energy prices could result in modest corporate earnings downgrades and put pressure on the rupee.
A prolonged period of elevated oil prices could also weaken domestic demand, while inflation could hurt consumption, particularly in rural areas.
The brokerage additionally identified El Niño as a potential macroeconomic risk.
China downgraded to neutral
In contrast, HSBC downgraded Chinese equities to ‘neutral’ from ‘overweight’.
Although Chinese stocks offer relatively low valuations and high shareholder yields, HSBC believes recent policy measures may provide downside protection but are unlikely to create sufficient catalysts for a sustained market re-rating.
Weak consumer confidence, continued stress in China’s property sector and subdued domestic investment remain major constraints.
The contrasting recommendations reflect HSBC’s changing assessment of the earnings outlook, valuations and market catalysts across Asia’s two largest equity markets.
