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HSBC has shifted its stance on Indian equities from bullish to neutral, citing concerns over high valuations and a slowdown in growth, closely mirroring recent moves by Goldman Sachs and others.
What does this mean?
HSBC has aligned with Goldman Sachs and Bernstein in downgrading Indian equities, a move steered by a cyclical slowdown and steep valuations. Their revised target for the BSE Sensex is 85,990 by the end of 2025, reflecting this cautiousness. In contrast, Citi and Morgan Stanley remain optimistic, projecting double-digit returns, while Motilal Oswal foresees strong corporate earnings in fiscal year 2026. The forecasted 6.4% growth for India is the slowest in four years, hampered by manufacturing issues and reduced corporate investment. With foreign investors pulling back, the Sensex and Nifty 50 have fallen about 10% from their peaks, emphasizing the impact of overvaluation worries.
The recent downgrades by leading banks highlight the fragile balance of investing in Indian stocks amid valuation pressures and growth deceleration. With the Sensex and Nifty 50 having dropped 10% from their highs, investors must weigh potential returns against emerging risks. Yet, Citi, Morgan Stanley, and Motilal Oswal's optimism hints at lucrative opportunities for those who closely track market developments.
The bigger picture: India's mixed economic signals.
India's economic growth is forecasted to be the slowest in four years, hindered by weak manufacturing and subdued corporate investments, highlighting broader economic challenges. The banking sector's issues with diminished credit demand and the tech sector's slow recovery due to sluggish overseas markets add to the complexity. Nonetheless, HSBC notes the relative resilience of Indian equities against global uncertainties, offering some reassurance amid these local challenges.