Synopsis: HSBC has taken a close look at India’s recent struggles in the market and has decided to keep a “Neutral” stance on Indian equities within the broader regional picture.
HSBC flags four downside risks for Indian equities and several supportive factors that may impact the indian stock market in the coming times. In this article, we will discuss more about it in detail.
HSBC Comments
HSBS cited that some factors are improving, but it feels that the potential for short-term gains is still quite limited. Their nine-factor risk framework shows a mixed outlook, with five factors working in favor and four significant downside pressures influencing market sentiment.
On the downside, HSBC cautions that there could be earnings downgrades ahead, as the growth estimates for 2026, projected at 14 percent, are at risk due to a slow recovery in demand. There’s also an equity supply overhang from insider selling and a lack of foreign investment, which continues to put pressure on valuations.
Additionally, increasing competition across various sectors is likely to squeeze profit margins, while private capital expenditure is mainly focused on energy and mining, with manufacturing and capital goods lagging behind.
On the brighter side, HSBC highlights that rate cuts and lower inflation are relieving some pressure on the banking sector, along with fiscal measures like tax cuts that are expected to boost consumption and growth. Valuations seem to be less stretched, supported by strong domestic demand, and the risks from US trade tariffs appear minimal.
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Furthermore, HSBC believes that China’s recent market rally no longer poses a threat to India, as there’s limited overlap in institutional interests, allowing both markets to thrive simultaneously.
In summary, the Indian stock markets have seen quite a bit of ups and downs in recent months, influenced by mixed earnings reports, shifting foreign institutional investor (FII) flows, and rising worries about global trade tensions. In this context, HSBC’s insights offer a valuable viewpoint on the potential direction of the market.
While there are five supportive factors, they are countered by four ongoing risks, resulting in a balanced but somewhat constrained outlook for India in the near term.
Written by Satyajeet Mukherjee
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