hsbc-revises-indian-markets-to-neutral-cuts-sensex-target-by-5k-pts

As India grapples with slowing economic growth, HSBC Global Research has downgraded its outlook for the Indian stock market from "overweight" to "neutral." In its report, the global financial services firm noted that profits at India Inc. appear to have softened, while valuations remain high.

After a period of 25 per cent annual growth, profits seem to have slowed, and valuations are now elevated at 23x forward earnings. "As earnings disappoint, consensus has revised FY25 growth estimates for the NIFTY 50 from 15 per cent to 5 per cent. Investors are likely to reassess their positions, limiting market returns," the report stated, justifying its downgrade to "neutral." 

The Nifty, a benchmark stock market index in India, is currently about 11 per cent below its all-time high of 26,277.35 points. In 2024, both the Sensex and Nifty saw growth of around 9-10 per cent, while in 2023, they gained 16-17 per cent cumulatively.

In 2022, both indices grew by just 3 per cent each. Weak GDP growth, foreign fund outflows, rising food prices, and sluggish consumption were identified as key factors hindering investor confidence in 2024.

Despite this, HSBC Global Research remains "overweight" on mainland China, Hong Kong, and Indonesia, while being "underweight" on Taiwan, Japan, Singapore, and Thailand. In financial market terms, an "overweight" rating means that an analyst or advisory firm expects a stock to outperform in the future, and vice versa.

"We believe the risk profile for mainland China equities has improved and see a 21 per cent upside for the Hang Seng China Enterprises Index (HSCEI) by the end of 2025. This, along with the potential for lower US bond yields, should also benefit Hong Kong stocks, prompting us to upgrade the market to overweight," the report noted for China.

Turning to Japan, HSBC Global Research pointed out that Japanese equities benefited from a weaker yen in 2024. However, the report stated that there is limited potential for this trend to continue into 2025, which may cap performance. ASEAN is emerging as a central hub for global supply chains, with clusters of data centres being established in the region.

With rate cuts on the horizon, HSBC Global Research expects investors to favour ASEAN markets this year.