HSBC upgrades Indian equities to 'overweight', cuts China to 'neutral'

Foreign brokerage HSBC on Monday upgraded Indian equities to "overweight" after the recent market corrections. The brokerage also downgraded Chinese stocks to "neutral", according to a report. "Following a multi-year valuation re-set and significant underperformance to EM (emerging markets), we now raise Indian equities to overweight," the brokerage said.

It expects strong credit growth, resilient earnings and measures supporting growth and the currency going forward. Even as oil prices, which are bound to impact an energy-importing country like India, continue to remain volatile, they will not be significant enough to affect overall sentiment, the report said. High oil prices and El Nino remain risks but are unlikely to materially weaken overall sentiment, it said.

"India offers diversification and low volatility in Asian markets dominated by AI stocks," it added. Indian valuations look "more reasonable" now, and growth remains resilient despite a series of macro shocks, including higher interest rates and oil prices, it said. From a sectoral standpoint, the brokerage said it prefers capital goods, cement, ports and electronic manufacturing services.

On the consumption front, it prefers consumer discretionary stocks over staples, with a preference for retailers and auto companies. Interestingly, the brokerage said it is positive on insurance and hospitals despite the recent regulatory uncertainty. On the downgrade of Chinese equities to neutral, it said the move was driven by its belief that there are limited catalysts that could trigger a sustained re-rating. "Weak consumer confidence, property market pressures, and softer domestic investment continue to weigh on growth, while subdued southbound flows and declining margin financing point to weaker investor appetite," it added.