HSBC and Citi turn bullish on Indian equities amid record foreign inflows

Global banks are turning increasingly bullish on Indian stocks as the market experiences its sharpest rally in more than four years, driven by record foreign capital inflows. The renewed interest follows a prolonged period of underperformance by foreign investors who had previously concentrated capital in artificial intelligence-driven markets across the US and Asia.

HSBC Holdings Plc upgraded local equities to overweight from neutral, citing resilient earnings and more reasonable valuations. Strategists at the firm, including Herald van der Linde, noted that India offers key diversification and low volatility in Asian markets that are otherwise heavily dominated by AI stocks. HSBC’s sector preferences include banks, industrials, consumer discretionary companies, insurers, and hospitals.

Meanwhile, Citigroup Inc. raised its 12-month target for the NSE Nifty 50 Index by nearly 8% to 28,000. Citi analysts, including Surendra Goyal and Vijit Jain, pointed to improving profit growth and lower oil prices as core drivers. The brokerage estimates that Nifty earnings will grow by approximately 15% to 16% annually for the fiscal years spanning 2026 to 2028. Citi also calculated that a $10 decline in crude oil prices could boost Nifty earnings per share by roughly 2%.

The market momentum is supported by substantial capital movement. Overseas funds purchased $3.6 billion of local shares in the four days through Thursday, placing them on track for their largest-ever weekly inflow. Provisional data indicated an additional $1.5 billion in purchases on Friday. The benchmark index has risen nearly 8% this month, marking its strongest performance since July 2022 and establishing India as one of the top-performing major markets globally. Local stocks experienced a minor dip following profit-booking after the recent rally.

Citi analysts suggest there is significant room for foreign positioning to rebuild, noting that AI investments had previously crowded out allocations to other sectors. According to the brokerage, a single percentage-point increase in active fund allocations toward India could trigger approximately $12 billion in foreign inflows.

"The shift in sentiment by global financial institutions toward Indian equities highlights the growing importance of market diversification. As global portfolios look beyond AI-heavy technology sectors, India's steady corporate earnings and consumption-driven growth present a strong case for sustained capital inflows. For the broader business ecosystem, this wave of liquidity can strengthen market stability and improve capital availability for scaling businesses." — Dr. Shishir Gupta, Founder & CEO, StartupLanes