'India Valuations No Longer A Concern', Says HSBC As It Upgrades Stance To 'Overweight'

HSBC has upgraded Indian equities from 'neutral' to 'overweight', saying that the market now looks attractive on a regional basis after a year of underperformance, with a Sensex price target of 94,000.

The Indian equity market has seen tremendous weakness since mid-September. 2024, ranking among the world's worst performers. But HSBC analyst Herald Van Der Linde, in the Asia Strategy note, says the pain is over and valuations are no longer a concern.

Van der Linde said domestic policies have turned pro-growth, with tax cuts expected to support consumption. He also noted the Reserve Bank of India's easy policy to support inflation.

“A slew of measures – including the income tax cuts in February and the recent overhaul of GST – can help restore confidence,” HSBC said.

The Indian market has faced the brunt of an uncertain global scenario, Trump Tariffs and slowing domestic growth, which has put pressure on benchmarks. On top of it, valuations have been a niggling concern, especially with corporate earnings yet to prove a point.

HSBC said the conditions are shifting, with growth expectations moderating. It noted that earnings forecasts for 2025 have come down sharply, with consensus estimates falling to 12% and potentially easing further to 8-9%. Therefore, the brokerage firm believes valuations are no longer a concern.

“Most foreign funds are still lightly positioned in India,” the note said, which does raise the possibility of foreign investors potentially coming back to India.

The note further said that while Trump tariffs remain a key overhang, it is unlikely to dent corporate earnings as most companies are largely domestic in nature.

While recovery might only be gradual, HSBC believes that with softer inflation, policy support and a moderation in valuation, India could become more attractive compared to regional peers.