India's Sensex 2025-End Target Slashed By HSBC On Earnings Risk

HSBC Global Research has cut the 2025 year-end target of India benchmark gauge—BSE Sensex—as risks of earnings downgrades amid high valuations weigh on the global brokerage.

The target for BSE Sensex was cut to 90,520 from 1,00,080 for the end of 2025, implying a 15% upside from the current level, HSBC said in a note on Nov. 19. The earnings per share downgrades points to growth shifting down a gear to a "still strong but more sustainable level," Herald van der Lind, head of equity strategy, Asia Pacific, said in the note.

“As earnings stall, investors will likely re-evaluate their positions. This poses a near-term risk to India equities,” HSBC said. However, India is set to remain one of the fastest growing markets in 2025 despite the near-term weakness, it said.

After a soft second quarter, the earnings season has gotten off to a weak start in the October to December period, the brokerage said. India is possibly settling on a slower growth trajectory than what was seen in the past few years, it said.

The Sensex corrected by 8.46% from the recent peak, while the mid- and small-cap indices corrected by 9.1% and 7.24%, respectively.

Banks—the largest weight in the listed universe—are struggling with interest margins as they compete to attract deposits, while the information technology growth is weak because of a slow recovery in overseas demand.

Further, the demand from urban consumers is weak, with a slowdown in segments which are the main driver of consumption in the past few year, it said.

Some recent high-frequency macro indicators, such as PMI numbers, goods and services tax collections, and auto sales have also disappointed, it said.

India's gross domestic product growth is likely to moderate from 8.2% in 2023 to 7% in 2024 and 6.5% in 2025, due to exhausted pent-up demand accumulated during Covid amid the economy regaining its potential, according to the International Monetary Fund.

While urban demand is slowing, rural demand is likely set to recover in the coming months, the global brokerage said. "This is good for the economy, but it touches only a small part of India's stock market."

HSBC highlights a "particular market feature" where the EPS growth is "heavily skewed" towards small and mid-cap stocks. "They are expected to grow much faster than large caps, at 30%, while the large cap universe is expected to grow by only 12%."

In the Asia region, HSBC said that China equities have a lower risk profile and sees a 21% upside in the Hang Seng China Enterprises Index by the end of 2025 end. Japanese equities face headwinds as a stronger yen by next year-end may put a lid on performance.