HSBC Bets On India’s Growth Story, Downgrades China Amid Economic Concerns

Global financial services major HSBC has upgraded Indian equities to 'overweight' from 'neutral', citing resilient corporate earnings, improving credit growth and more reasonable stock valuations following a prolonged market correction. At the same time, the brokerage downgraded Chinese equities to 'neutral' from 'overweight', reflecting concerns over weak consumer confidence, property market stress and limited prospects for a sustained market recovery.

According to a report by HSBC's Asia-Pacific equity strategy team, authored by Herald van der Linde, Head of Equity Strategy for Asia Pacific, India has become relatively attractive after a multi-year valuation reset and significant underperformance compared with other emerging markets.

HSBC expects India's corporate earnings momentum to improve, with the pace of earnings downgrades moderating. Large-cap stock valuations have become more reasonable, while strong credit growth and government policy measures supporting economic expansion and the rupee are providing additional support.

The brokerage also highlighted India's diversification appeal as Asian equity markets become increasingly dominated by artificial intelligence-linked stocks. Currently, only 22 per cent of global emerging-market funds are overweight on India, indicating scope for increased foreign investor participation.

Among sectors, HSBC prefers banks, industrials, capital goods, cement, ports and electronic manufacturing services. It also favours discretionary consumption stocks, particularly retailers and automobile manufacturers, over consumer staples. Insurance companies and hospitals are other preferred investment segments.

However, sustained high crude oil prices could increase inflation, weaken the rupee and affect domestic demand. Rural consumption and the possibility of an El Niño event are additional risks.

Meanwhile, HSBC's downgrade of Chinese equities reflects the absence of strong catalysts for a sustained market re-rating, despite relatively low valuations, attractive shareholder yields and government measures to stabilise capital markets. Weak consumer confidence, continued property market stress and subdued domestic investment remain major challenges. Declining margin financing and subdued southbound capital flows also indicate weakening investor appetite.

Within China, HSBC prefers banks, consumer companies offering attractive bond yields, biotechnology firms and technology hardware manufacturers benefiting from artificial intelligence expansion.

The contrasting recommendations underline HSBC's growing confidence in India's earnings prospects and economic fundamentals, while highlighting persistent challenges facing China's recovery.