JPMorgan has downgraded Indian equities to ‘neutral’ from ‘overweight’, citing concerns over elevated valuations, rising earnings risks, and India’s limited exposure to next-generation technology, making other emerging markets appear more attractive.
Illustration: Dominic Xavier/Rediff
Key Points
- JPMorgan has downgraded Indian equities to ‘neutral’ due to elevated valuations, increasing earnings risks, and insufficient exposure to next-generation technology.
- The brokerage set a base-case Nifty 50 target of 27,000, with bull and bear cases at 30,000 and 20,500, respectively.
- India’s valuation premium over the MSCI EM index, though narrowed, remains significant compared to peers offering similar or higher forward earnings growth.
- Earnings are at risk from higher energy costs, supply disruptions, and equity dilution from increased capital raising activities.
- Limited representation in high-growth segments like AI and semiconductors, coupled with potential weather risks affecting rural demand, further weigh on the outlook.
JPMorgan has downgraded Indian equities to “neutral”, citing elevated valuations, rising earnings risks, and limited exposure to next-generation technology.
“While India’s structural growth story remains strong, multiple idiosyncratic factors have made other emerging markets (EMs) appear more attractive to us on a risk/reward basis,” said Rajiv Batra, head of Asia & co-head of global emerging markets equity strategy at JP Morgan, in a note on Friday.
The brokerage has turned more constructive on Asian technology stocks upgrading Taiwan to “overweight” amid a renewed artificial intelligence (AI) rally.
Valuation Concerns and Earnings Risks
JPMorgan has set a base-case target of 27,000 for the Nifty 50, with a bull-case of 30,000 and a bear-case of 20,500.
“India has historically traded at a “scarcity premium” because of its high growth and policy stability. However, that premium is being challenged by low-single-digit trailing growth in the last eight quarters.
Even though India’s valuation gap with the MSCI EM index has narrowed to 65 per cent (versus the 109 per cent peak premium), it still trades at a significant premium to peers like South Korea, Brazil, China, Mexico and South Africa.
“They offer an inexpensive entry point for higher or similar forward earnings growth,” said Batra.
The brokerage has said India’s earnings are at risk from higher energy costs and supply disruptions.
Its analysts have cut FY27 earnings estimates by 2-10 per cent across key sectors.
The brokerage has lowered its earnings growth forecasts by 2 per cent to 11 per cent for calendar 2026 and 1 per cent to 13 per cent for calendar 2027.
Equity Dilution and Technology Exposure
Another key overhang is equity dilution. “As companies issue more equity capital to fund growth (additional issuances or new companies), direct or indirect dilution impacts the prices of existing equities…While the “gold rush” of fundraising is currently facing hurdles, most Indian corporates are expected to resume their capital-raising plans once these external pressures normalise,” said the brokerage.
Strong domestic inflows — about $120 billion since early 2025 — have cushioned foreign outflows, but a surge in initial public offerings (IPOs), qualified institutional placements (QIPs) and promoter stake sales is capping upside for existing shareholders, the report noted.
JPMorgan also highlighted India’s limited representation in high-growth segments such as artificial intelligence (AI), semiconductors and data centres compared to other major markets.
This, it said, reduces the market’s ability to benefit from the ongoing global AI-driven capex cycle.
In addition, weather risks could weigh on the outlook.
The India Meteorological Department’s forecast of a below-normal monsoon at 92 per cent of the long-period average raises concerns around rural demand and food inflation, the brokerage said.
Long-Term Outlook and Sector Stance
Despite the downgrade, JPMorgan maintained that India’s long-term fundamentals remain strong, supported by policy reforms, capex momentum and domestic demand.
It is overweight on domestic cyclicals such as financials, materials, discretionary consumption, defence and power.
It has an underweight stance on IT and pharma.
