Mumbai, Nov 7 Indian equities are expected to see incremental foreign inflows, and recent market movements imply the worst of the underperformance is over, presenting an opportunity for diversification away from the global AI rally, a report said on Friday.
"We are overweight Indian equities from the Asia perspective, with an end-2026 index target for Sensex at 94,000," according to the report from HSBC Global Investment Research.
After underperforming Asia by 30 per cent in the past 12 months, we think the worst is over for Indian equities, the report said, defending its upgrade to overweight India.
Herald van der Linde, CFA, Head of Equity Strategy, Asia Pacific, reported that Indian equities are currently the biggest underweight in global emerging market (GEM) portfolios, and only a quarter of the funds the firm tracked are overweight on India.
"India offers a hedge and diversification to those who feel uncomfortable with the ongoing AI rally. India is likely to be an outsized beneficiary of any additional money coming into the EM region," the report mentioned.
A potential reduction in US tariffs would likely be a big boost. However, risks to our upgrade include a delay to the earnings recovery, further diversion of global flows into the AI theme, and less domestic appetite for equities, the report said.
The research firm said that “valuations now are not as much of a headwind as they were a year ago,” adding that the Indian market now offers value compared to Chinese equities.
“We think earnings have bottomed in India, and expect to see a broad-based recovery in 2026. Banks were a massive drag on growth this year, but as deposits are rolled over, margins will expand in the coming quarters,” the report said.
The technology sector is also likely to experience increasing demand. Consumer names, including autos, are poised to benefit from GST reductions, lower inflation, and lower interest rates, it noted.
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