Analysts at HSBC downgraded Indian equities to ‘Neutral’ from ‘Overweight’.
(Photo: iStock)
Analysts at HSBC downgraded Indian equities to ‘Neutral’ from ‘Overweight’.
The London-based financial services firm, has also revised its Sensex target for the end of 2025, lowering it to 85,990, from 90,520 earlier. The new target reflects an upside of 10.03 per cent from the January 8 closing level of 78,148.49.
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The shift reflects tempered optimism for the market’s performance amid concerns over high valuations and slowing growth momentum.
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India is one of the best structural stories in the region. The market benefits from a young demographic profile, expanding consumer segments, and ongoing investments in both physical and digital infrastructure, HSBC said.
Additionally, India’s growing share in global trade and record-high forex reserves provide stability against currency volatility.
Earnings growth, which had been robust since 2020, has slowed in recent quarters. The banking sector, which holds the largest weight in India’s market, is grappling with the aftereffects of stringent monetary policy measures, analysts said. These have dampened credit demand and squeezed interest margins as banks compete for deposits.
Meanwhile, the tech sector, the second-largest, is underperforming due to a sluggish recovery in overseas demand. Although rural demand is showing signs of improvement, urban consumption remains subdued.
While growth remains robust, downgrades matter because India’s earnings multiples are high. As earnings stall and markets recalibrate their earnings expectations, we see muted market returns in 2025,” Herald van der Linde, Prerna Garg, Adam Qi and Varun Pai of HSBC said in a note.
Pranjul Bhandari, HSBC’s Chief Economist for India and Indonesia, expects further monetary easing, predicting two repo rate cuts of 25 basis points each in February and April 2025.
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