HSBC Cuts Sensex Target To 76,130 By December 2024

While HSBC stays 'overweight', it cited falling household savings, weak rural spending and global worries for its caution.

A yellow ambassador taxi drives past the HSBC bank building in Kolkata. 
A yellow ambassador taxi drives past the HSBC bank building in Kolkata. 

HSBC reduced its Sensex target to 76,130 by December 2024 citing falling household savings, weak rural spending and global worries even as it maintained "overweight" stance on Indian equities.

While the new target implies a potential upside of 15.9%, it's lower than 78,870 earlier, according to a note by HSBC. Indian equities "have had a good run" but the markets have "gone too far in terms of their pricing and expectations", the brokerage said.

India's net household savings rate has fallen to the lowest in 50 years, indicating that consumers are using savings to make purchases, pushing urban consumption higher, the note said. That, according to HSBC, is an risk to earnings in a high-inflationary environment.

Amid moderate staples growth, the analysts also see uneven monsoon impacting rural demand. And weak global demand in the software sector is still a concern despite strong overall earnings outside of the commodity space, according to HSBC.

HSBC, however, said that the growth outlook for Indian equities is "much clearer". The brokerage cited earnings growth driven by formalisation, government spending, FDI inflows and diversification of global supply chains as long-term triggers.

HSBC's target cut echoes caution flagged by other foreign brokerages following the surge and small and mid caps. Morgan Stanley, which has a 74,000 target for the Sensex, expects volatility for domestic stocks in 2024. And UBS downgraded India to 'underweight' citing the weakest foreign flows, "ordinary" growth and "expensive” valuations.

Caution For Small And Mid Caps

India's benchmark indices have lagged broader small- and mid-cap gauges this year. While the Sensex gained 8.41% year-to-date compared to a 32% rise in mid-cap index and an over 38% gain in small-cap. HSBC expects that to change.

It is the local investors that invest in the small and mid-cap space through mutual funds, while foreign investors lean towards large caps, according to the brokerage.

Despite India's persistent outperformance, PE valuations of large-cap indices Nifty 50 are close to their five-year means, HSBC said in the note. "This suggests that a rotation to large caps is imminent and some caution in mid-caps is warranted."

HSBC sees sector leaders including HDFC Bank Ltd., Avenue Supermarts Ltd. (DMart) or Jubilant Foodworks Ltd. as attractive bets.

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