HSBC Upgrades India to ‘Overweight’, Says Valuations Now Attractive

HSBC Research has upgraded Indian equities to “overweight” from “neutral”, citing improving valuations, supportive government measures, and resilient local investor participation despite heavy foreign outflows.

Over the past year, benchmark indices Sensex and Nifty50 have struggled to regain momentum after touching record highs. Weak corporate earnings, foreign institutional investor (FII) withdrawals, and global headwinds such as trade tensions and U.S. tariffs weighed on sentiment. According to NSDL data, FIIs have sold equities worth ₹1,39,423 crore so far in 2025.

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Yet, HSBC analysts argue that the outlook is turning favourable. The report, led by Herald van der Linde, Head of Equity Strategy for Asia Pacific, highlighted that government consumption measures – including nil tax up to ₹12 lakh and GST benefits – combined with expected rate cuts by the Reserve Bank of India (RBI), are likely to support growth.

“While earnings expectations may still decline slightly, valuations are no longer a concern. Policy support is increasing, and foreign funds remain lightly invested in India,” the report stated.

Earnings and Valuation Outlook

The research noted that India’s underperformance was partly due to a slowdown in earnings growth at a time when valuations remained stretched. Consensus estimates for FY2025 earnings growth have been trimmed to 12%, with expectations that they may further fall to 8–9%. For FY2026, analysts forecast a 15% recovery, though much will depend on the effectiveness of policy measures.

Despite global uncertainties, most Indian listed companies are domestically focused, with less than 4% of BSE500 sales linked to exports to the U.S. Hence, the direct earnings impact from high U.S. tariffs remains limited.

Asian Market Trends

HSBC also pointed out that while foreign investors have been net sellers across Asia this year, regional equities have gained around 20%, largely driven by strong local retail participation. In contrast to overcrowded trades in North Asia, particularly in artificial intelligence-linked stocks, India has remained relatively insulated, making it “Asia’s quiet corner”.

Chinese Equities View

The report also touched on China, noting that mainland retail investors, holding approximately $22 trillion in cash, continue to channel funds into equities. Investments into Hong Kong-listed stocks this year have surged to $140 billion, more than double the recent annual average. HSBC expects gradual gains in both A-shares and H-shares as investors diversify.

Conclusion

HSBC’s latest outlook indicates that while challenges such as subdued earnings and global trade frictions persist, supportive policies and stable domestic demand are creating a stronger case for Indian equities. With valuations now more reasonable, the brokerage sees India as an attractive destination compared to other crowded Asian markets.