HSBC Upgrades Indian Equities to Overweight and Cuts China to Neutral, Joining Other Global Brokerages

HSBC Global Investment Research has upgraded Indian equities to overweight from neutral and simultaneously downgraded mainland China to neutral from overweight, marking a notable shift in its Asia equity strategy. The bank pointed to a multi-year valuation reset, resilient corporate earnings, and strong domestic credit growth as the main drivers for its elevated outlook on India.

According to the report, credit growth in India rose by 21 per cent year-on-year in October, with corporate lending increasing by approximately 24 per cent and MSME credit climbing by 25 per cent. The FTSE India index currently trades at roughly 19 times forward price-to-earnings, aligning with its long-term average following a period of underperformance relative to broader emerging markets.

HSBC strategists noted that consensus forecasts project 14 per cent earnings growth for India in FY27 and 16 per cent in FY28, though they cautioned that these estimates are slightly optimistic and could see modest cuts in certain sectors. Furthermore, only 22 per cent of Global Emerging Market funds are currently overweight on India, indicating room for market positioning to shift.

This constructive outlook is shared by other major global brokerages. Citi Research recently raised its Nifty target to 28,000 from 26,000, representing an upside of around 12 per cent, backed by a resilient domestic earnings outlook, lower crude oil prices, and a more measured pace of artificial intelligence-related capital expenditure. Citi projects annual earnings growth of 15 to 16 per cent over FY26 to FY28.

Additionally, Jefferies increased India's allocation in its Asia-Pacific ex-Japan relative-return portfolio by two percentage points to 14 per cent while maintaining an overweight stance. Simultaneously, Jefferies reduced allocations to South Korea and Taiwan by one percentage point each as investors reassess global AI-related investment prospects beyond the technology supply chain.

Regarding sector preferences in India, HSBC favors financials, consumer discretionary, industrials, real estate, and hospitals. Within industrials, the bank highlighted capital goods, cement, ports, and electronic manufacturing services. Conversely, it is least positive on IT, consumer staples, oil and gas, utilities, and pharmaceuticals.

Despite the positive outlook, HSBC flagged several key risks for the Indian market, including sustained high oil prices—with Brent crude recorded at USD 99 per barrel at the time of writing—alongside El Niño-related agricultural disruptions and building inflation. Consumer Price Index (CPI) inflation rose to 5.5 per cent in September, marking a 23-month high. HSBC economists anticipate that the Reserve Bank of India will implement a further 50 basis-point rate hike in December, following an earlier 25 basis-point increase in October.

In contrast, the downgrade of mainland China was driven by the absence of meaningful re-rating catalysts, despite low valuations and high shareholder yields. HSBC pointed to headwinds such as weak consumer confidence, a stressed property market, soft domestic investment, and declining margin financing.

"The decision by global financial institutions like HSBC, Citi, and Jefferies to increase allocations toward Indian equities reflects the underlying strength of domestic credit growth and corporate earnings resilience. While macroeconomic risks such as rising inflation and fluctuating crude oil prices remain, the multi-year valuation reset offers a stable foundation for long-term investors looking at diversified opportunities within the Asian market." — Dr. Shishir Gupta, Founder & CEO, StartupLanes