HSBC downgraded its outlook on Indian stock markets to "neutral" on January 9, shifting from its previous "overweight" stance. The brokerage also reduced its 2025-end Sensex target to 85,990 from 80,520, indicating a potential upside of 10% from current levels. Meanwhile, HSBC upgraded its outlook for China's market and raised Hong Kong’s market to "overweight," while South Korea was moved from "underweight" to "neutral."
HSBC’s note highlighted that after a period of impressive 25% annualized growth, profits in India have slowed, and valuations are currently elevated at 23 times forward earnings. Despite India’s strong medium-term structural potential, growth slowdowns and high valuations have limited upside, prompting the downgrade.
The brokerage pointed out that consensus growth estimates for the Nifty 50 in FY 2025 were slashed to 5% from an earlier forecast of 15%, with the weak earnings outlook leading investors to reassess their positions. While HSBC acknowledged that India remains the strongest emerging market growth story, it noted challenges, particularly in the banking sector, which is grappling with margins and growth, and in IT, which faces sluggish recovery in overseas demand, especially from Europe. Moreover, weak demand from urban consumers adds to the downside risk for 2025.However, HSBC emphasized that the concerns over India's market facing "trouble" are exaggerated. It suggested that while urban demand may be slowing, rural demand could recover in the coming months, offering hope for the economy, although it has limited impact on the equity market.