Global financial services firm HSBC has upgraded Indian equities to 'overweight' from 'neutral', citing resilient corporate earnings, improving growth prospects and attractive valuations following a prolonged market correction.
In its latest Asia-Pacific equity strategy report, HSBC said India's improving earnings outlook, strong credit growth and supportive policy measures could strengthen investor confidence.
The brokerage noted that Indian stocks, particularly large-cap companies, had become more reasonably valued after underperforming other emerging markets.
It also highlighted that only 22% of global emerging market funds currently hold overweight positions in India, suggesting scope for additional foreign investment.
HSBC identified banking as a preferred sector, supported by improving credit growth and business prospects.
Within industrials, the brokerage highlighted opportunities in capital goods, cement, ports and electronic manufacturing services.
It also favoured consumer discretionary companies over consumer staples, particularly automobile manufacturers and retailers.
Insurance companies and hospitals remained attractive despite regulatory uncertainties.
HSBC said India's relatively low market volatility and diversification benefits strengthened its appeal as Asian markets became increasingly concentrated in artificial intelligence-related investments.
However, the brokerage cautioned that elevated crude oil prices and a possible El Niño weather pattern could threaten economic growth.
Persistently high energy costs could weaken domestic demand, pressure the rupee and increase inflation, particularly affecting rural consumption.
Nevertheless, HSBC expects potential earnings downgrades to remain manageable.
Alongside India's upgrade, HSBC downgraded Chinese equities to 'neutral' from 'overweight', citing limited catalysts for a sustained market recovery.
The brokerage identified weak consumer confidence, continued property sector stress and subdued domestic investment as major challenges.
It also pointed to weaker southbound investment flows and declining margin financing as indicators of cautious investor sentiment.
Despite attractive valuations and previous policy support, HSBC saw limited evidence of significant near-term measures to revive underlying growth.
Within China, the brokerage continued to favour banks, selected consumer companies offering attractive yields, biotechnology businesses and technology hardware firms positioned to benefit from artificial intelligence adoption.
