HSBC upgrades Indian equities to overweight, cuts China to neutral

Foreign brokerage HSBC on Monday raised its view on Indian equities to "overweight", meaning a higher allocation than general investment advice would suggest. The firm also cut its rating on Chinese equities to "neutral". The decision comes amid the recent fall in the stock market.

In its report, HSBC said Indian stock valuations had been weak for several years and that their performance had also lagged other emerging markets. The decision followed that. According to the report, valuations of Indian shares have now reached a more reasonable level.

HSBC expects credit growth in India to stay strong and corporate earnings to remain stable. Steps taken to support economic growth and the rupee would also be favourable for the market. The brokerage said fluctuations in crude oil prices are natural for an energy-importing country such as India. Despite higher oil prices and the threat of El Nino, they are unlikely to have a major effect on overall market sentiment.

HSBC also said that among Asian markets dominated by artificial intelligence (AI) companies, India offers a different kind of investment option. Market volatility here is also comparatively low. According to the report, India's economic growth has remained strong despite several economic challenges, such as high interest rates and crude oil prices.

On the decision to move Chinese equities to neutral, HSBC said the factors that could bring a durable improvement in share valuations are limited. The report said weak consumer confidence, pressure on the property market and sluggish domestic investment are weighing on China's economic growth.

In addition, investment flowing into the Hong Kong stock market from mainland Chinese investors is declining. Investment in shares through margin loans has also fallen. According to the report, this too shows that investor interest is waning.