D-Street Jitters: HSBC Downgrades Indian Stock Market To 'Neutral' From 'Overweight' - Factors

The Indian economy is facing slow economic growth and HSBC Global Research has downgraded the Indian stock market outlook from "overweight" to "neutral".

The global financial services firm in a report said profits at India Inc have softened while valuations are evaluated.

In recent years there has been an annualised growth of 25 per cent due to which profits have softened while valuations have elevated by 23 times 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," the report said.

Nifty is currently approximately 11 per cent lower than its all-time of 26,277.35 points.

Sensex and Nifty had accumulated a growth of about 9-10 per cent each in 2024. In 2023, Sensex and Nifty increased by 16-17 per cent on a cumulative basis. They gained a mere 3 per cent each in 2022.

Investors were at bay in 2024 due to weak GDP growth, foreign fund outflows, rising food prices, and slow consumption.

The HSBC Global Research Report is overweight on mainland China, Hong Kong and Indonesia and is underweight on Taiwan, Japan, Singapore and Thailand.

An overweight rating on a stock typically 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 in China's context.

In 2024, Japan equities have benefitted due to a weaker yen.

According to the report, there is limited room for this to continue this year and this may consequentially put a lid on performance.

As ASEAN has become central to global supply chains, data centre clusters are sprouting up in the region.

HSBC Global Research expects investors to favour ASEAN markets this year as rate cuts and imminent.