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HSBC turns more bullish on Indian equities, citing resilient corporate earnings, improving growth prospects and attractive valuations, while flagging China’s weak consumer confidence, property market stress and lack of fresh policy catalysts.
Global financial services firm HSBC has upgraded Indian equities to ‘overweight’ from ‘neutral’, citing improving corporate earnings, stronger growth prospects and more attractive valuations following a prolonged market correction.
At the same time, the brokerage downgraded Chinese equities to ‘neutral’ from ‘overweight’, pointing to weak consumer confidence, continued stress in the property market and limited triggers for a sustained market recovery.
In its latest Asia-Pacific equity strategy report, HSBC said India offers an attractive investment opportunity amid improving earnings momentum, strong credit growth and policy measures supporting economic expansion and currency stability.
The report noted that Indian equities have undergone a multi-year valuation reset, making them more attractive, particularly among large-cap stocks.
HSBC also highlighted that only 22 per cent of global emerging market (GEM) funds are currently overweight on India, suggesting considerable scope for fresh foreign investor allocations.
“Growth remains resilient despite a series of macro shocks (i.e., higher interest rates and oil),” the report said, adding that the pace of corporate earnings downgrades had become significantly more modest.
The brokerage further said India’s relatively low market volatility and diversification benefits make it attractive at a time when Asian markets are increasingly dominated by artificial intelligence-related stocks.
More from BusinessWhich sectors does HSBC favour in India?
On sectoral preferences, HSBC maintained a positive outlook on banks, supported by an improving growth environment.
It also identified opportunities in industrial segments, particularly capital goods, cement, ports and electronic manufacturing services.
Within the consumption space, the brokerage favoured consumer discretionary stocks over consumer staples, with a preference for retailers and automobile companies.
HSBC also retained a positive view on insurance companies and hospitals, citing their long-term growth potential despite recent regulatory uncertainties.
However, the brokerage flagged elevated crude oil prices and the possibility of an El Niño weather pattern as key risks to India’s economic outlook.
It cautioned that sustained high energy prices could weigh on domestic demand and put pressure on the rupee. Higher inflation could also hurt rural consumption.
Despite these concerns, HSBC believes potential earnings downgrades over the coming quarters are unlikely to be significant enough to materially affect overall market sentiment.
Why has HSBC turned cautious on China?
In contrast, HSBC downgraded Chinese equities to ‘neutral’ from ‘overweight’, citing a lack of catalysts that could drive a sustained re-rating of the market despite attractive valuations and recent policy support.
The brokerage identified weak consumer confidence, persistent stress in the property market and subdued domestic investment as major challenges to China’s growth outlook.
It also pointed to subdued southbound investment flows and declining margin financing as signs of weakening investor appetite.
According to HSBC, there are limited indications of meaningful near-term policy support that could strengthen underlying economic growth.
“Our downgrade reflects our belief that there are limited catalysts that can drive a sustained re-rating,” the report said.
However, HSBC continues to see opportunities in select Chinese sectors, including banks, consumer stocks offering attractive bond yields, biotechnology and technology hardware companies expected to benefit from the expansion of artificial intelligence.
