After a year of steep underperformance, India’s equity market could be poised for a turnaround, HSBC said on Friday. The foreign brokerage said valuations have corrected to historical averages, inflation is easing, and corporate earnings appear near their bottom, setting the stage for a recovery.
HSBC, which recently upgraded India to overweight in its regional strategy, said Indian equities lagged emerging markets by 32 percentage points between September 2024 and now, the weakest spell since 2001. “In cricketing terms, we expect India to return to form,” it said.
A comeback by foreign portfolio investors (FPIs) looks likely, HSBC argued, pointing to three drivers. First, flows into Korea and Taiwan are now crowded, having been funded by earlier selling in India, and could reverse on any negative AI news. Second, despite a softer dollar and the Federal Reserve restarting rate cuts, emerging-market rotation has yet to happen-when it does, India should be a key gainer. Third, while US tariffs have limited earnings impact, any positive trade developments could entice investors on the sidelines.
Demand-side policy measures should support consumption, with auto sales set to benefit and staples likely to see margin recovery next year. In financials, HSBC prefers large banks, diversified players, and non-life insurers, forecasting margin recovery by 2026. The outlook for tech services has improved after a sharp re-rating, with demand expected to pick up next year. Risks from US tariffs weigh on pharma, but the brokerage sees them as limited given America’s dependence on Indian generics. Telecom and hospitals remain structural demand plays.
Playing XI
HSBC’s top stock recommendations include Marico, Trent, Mahindra & Mahindra, Phoenix Mills, HDFC Bank, ICICI Lombard, UltraTech Cement, Infosys, Adani Ports & SEZ, Divi’s Laboratories, and NTPC.