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HSBC has also cut its 2025-end Sensex target to 85,990 from 80,520 earlier. The revised price target implies a potential upside of 10% from current levels.
On the flip side, HSBC is “overweight” on China, has upgraded Hong Kong’s market to “overweight” as well. Markets in South Korea have been upgraded to “neutral” from “underweight” earlier.
HSBC said in its note that after annualised growth of 25% in recent years, profits appear to have softened, while valuations are elevated at 23 times forward earnings.
India provides a strong medium-term structural story, but the slowdown in growth, amidst high valuations limits the upside and hence the downgrade from HSBC.
“As earnings disappoint, consensus has cut its financial year 2025 growth estimates for the Nifty 50 to 5% from 15% earlier. Investors will likely re-evaluate their positions, limiting market returns,” HSBC wrote in its note.
Although growth in India has softened, it remains the strongest emerging market growth story, HSBC’s note said.
HSBC cited several reasons for the weaker growth, saying banks, the largest weightage in the listed universe is struggling with margins and growth.
Growth in India’s second-largest sector, IT, is also weak due to a slow recovery in overseas demand, particularly from Europe. Adding to that is the weakness in demand from urban consumers.
“This suggests that there could be further downside risk to the growth that consensus is looking for in 2025,” HSBC said. However, it added that the notion of “trouble” brewing in the Indian markets is an “exaggeration”.
The brokerage said that urban demand may be slowing but rural may recover in the coming months. While that may be good for the economy, it touches only a small part of the equity market.
First Published: Jan 9, 2025 7:12 AM IST
