UBS Drops Bearish View On India, Turns Neutral
UBS has upgraded India to ‘neutral' from ‘underweight', reflecting growing optimism around a domestic demand recovery and stable macro conditions. The shift marks a more constructive stance on Indian equities, supported by improving consumption trends, lower inflation risks, and manageable valuations.
The upgrade comes as global investors are refocusing on emerging markets in the wake of US President Donald Trump's tariff war, with benchmark indices recouping their losses since April 2.
UBS expects an 8% upside in the Nifty 50 over the next year, targeting 26,000. The view is based on a stable earnings environment supported by domestic drivers, even as global risks remain elevated.
Reasons Behind The Upgrade
UBS outlined four primary reasons for its renewed confidence in India. First, it expects a consumption-led recovery in fiscals 2026 and 2027, after a weak demand and capex cycle in the previous fiscal. Second, lower oil prices are seen as a tailwind for GDP growth and a moderating influence on inflation.
Third, India is better positioned than many of its Asian peers to withstand potential disruptions from US tariffs and a global economic slowdown. Lastly, valuations are viewed as reasonable, with the market trading near its historical average one-year forward PE of 7–8 times.
UBS also highlights improving credit trends, particularly in housing and urban consumption. A revival in rural demand and potential policy support are expected to provide additional momentum. The research note points to falling interest rates, increased liquidity, and regulatory easing by the RBI as further catalysts.
Preferred Sectors
UBS prefers sectors that are closely tied to domestic consumption and earnings stability. These include financials, consumer staples, retail, autos, and hospitals. The firm is more cautious on industrials, IT, and pharmaceuticals, citing risks from global growth uncertainty and weak capex visibility.
Top Buys And Sells In India
The firm's top 'buy' calls are focused on companies with strong local demand exposure, margin improvement potential, and sector tailwinds. These include Hindustan Unilever Ltd., ICICI Bank Ltd., Interglobe Aviation Ltd., Sun Pharmaceuticals Ltd., Trent Ltd., and TVS Motors Ltd.
On the other hand, UBS warns against stocks with lofty earnings expectations that may face downside risks. Its top 'sell' recommendations include Asian Paints Ltd., Bajaj Finance Ltd., Cummins India Ltd., and Jubilant FoodWorks Ltd., citing overvaluation and the potential for consensus downgrades.
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