HSBC has downgraded Indian equities markets to “neutral” from “overweight” due to slowing growth and high valuations. The corporation has also lowered its 2025 Sensex target, cutting it by 5,000 points to 85,990.
While India’s long-term growth story remains intact, HSBC has turned its focus to the China and Hong Kong markets.
HSBC stated that India’s strong annualized profit growth of 25% in previous years has slowed dramatically. This slowdown, along with expensive valuations—currently at twenty-three times forecast earnings—has limited upside. While India continues to have a solid medium-term structural growth narrative, near-term difficulties such as lower-than-expected profitability and economic deceleration have caused anxiety.
Banking and information technology are among the hardest-hit industries. Banks, which have the most weight in the listed universe, are struggling with decreasing profits and slowing loan growth. Similarly, the IT sector is seeing a slow recovery in global demand, particularly in Europe, resulting in a disappointing performance. Urban consumer demand has also declined, weighing on market sentiment.
Despite the downgrading, HSBC stated that India is still one of the strongest developing market tales. The brokerage predicted that rural demand would rise in the following months, providing a ray of hope for a larger economic revival. However, due to the small involvement of rural industries in public corporations, this may have little influence on equity markets.
In contrast to its view of India, HSBC upgraded China and Hong Kong to “overweight,” citing stronger growth prospects and more appealing values. South Korea has also been upgraded to “neutral” from “underweight.” These revisions reflect a shift in HSBC’s emerging market strategy, with a preference for regions with ffavourablerisk-reward dynamics in the short to medium term.
With HSBC’s recalibration, foreign institutional investments in Indian markets may realign slightly. While the downgrade may dampen expectations, it highlights the need for markets to resolve valuation problems and revive growth momentum to maintain their appeal on a global scale.
