As India faces slowing economic growth, HSBC Global Research has downgraded the Indian stock market outlook from “overweight” to “neutral”.
Photograph: Peter Nicholls/Reuters
In a report, the global financial services firm said profits at India Inc appeared to have softened while valuations are elevated.
After annualized growth of 25 per cent in recent years, profits appear to have softened while valuations are elevated at 23x forward earnings.
“As earnings disappoint – consensus has cut FY25 growth estimates for the NIFTY 50 from 15 per cent to 5 per cent – investors will likely re-evaluate their positions, limiting market returns,” it said while downgrading India to “neutral”.
Nifty, a benchmark stock market index in India, currently is about 11 per cent lower than its all-time of 26,277.35 points.
In 2024, Sensex and Nifty accumulated a growth of about 9-10 per cent each.
In 2023, Sensex and Nifty gained 16-17 per cent, on a cumulative basis. In 2022, they gained a mere 3 per cent each.
Weak GDP growth, foreign fund outflows, rising food prices, and slow consumption were some of the hurdles, keeping many investors at bay in 2024.
HSBC Global Research report, however, is overweight on mainland China, Hong Kong and Indonesia and underweight on Taiwan, Japan, Singapore, and Thailand.
In financial market parlance, going by definition, an overweight rating on a stock means that an analyst or an advisory firm believes the company’s stock price will perform better in the days to come, and vice versa.
“We think the risk profile for mainland China equities has improved and see 21 per cent upside for the HSCEI (Hang Seng China Enterprises Index) by the end of 2025e.
“This, along with potential lower US bond yields, should also help Hong Kong stocks and we upgrade the market to overweight,” the report said for China.
Moving on to Japan, Japan equities have benefited from a weaker yen in 2024.
HSBC Global Research report asserted that there is limited room for this to continue in 2025, which may put a lid on performance.
ASEAN is becoming central to global supply chains, and clusters of data centres are sprouting up in the region.
With rate cuts imminent, HSBC Global Research expects investors to favour ASEAN markets this year.
