HSBC upgraded Indian equities to "overweight" from "neutral" on Wednesday and said valuations were turning attractive versus peers, becoming one of the first major firms to turn bullish on Asia's third-largest economy after hefty U.S. tariffs kicked in.
Indian equities have vastly underperformed their regional and emerging market peers this year in the face of U.S. tariffs, stretched valuations and slowing earnings growth.
India's benchmark Nifty 50 (.NSEI) has risen 6.1% and the Sensex (.BSESN) has gained 4.7% so far in 2025. In comparison, the MSCI's broadest index for Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) has surged 23%.
"While earnings growth expectations can fall a little further, valuations are no longer a concern, government policy is becoming a positive factor for equities, and most foreign funds are lightly positioned," the investment research firm said in its report.
HSBC, which had downgraded India to "neutral" in January citing stretched valuations, set a target of 94,000 for Sensex by the end of 2026, indicating about 15% upside from its current level of 81,956.98.
The target reflects a 12-month forward price-to-earnings multiple of 23, compared to 9.6 to 18.4 for other countries in the region.
A tax cut-driven boost in consumption is also helping turn the tide, according to HSBC.
India announced tax cuts on hundreds of consumer items earlier this month, ranging from soaps to small cars, to spur domestic demand in the face of economic headwinds from punishing U.S. tariffs of up to 50%, the highest among Washington's trading partners, alongside Brazil.
Foreign investors have already dumped $15.9 billion worth of Indian equities so far in 2025, nearing the record $16.5 billion outflow of 2022, as per securities depository data.
Between the tax cuts and the Reserve Bank of India's 50-basis-point rate reduction in June, "the risk of sharp earnings downgrades has moderated," HSBC said.
"India is a quiet corner in the Asia equity universe," HSBC said. "On a relative basis, we think India is starting to offer value versus the rest of the region."
