HSBC downgrades Indian stocks to ‘Neutral’, lowers Sensex target to 85,990 for 2025 | Stock Market News

Stock market outlook: Global brokerage house HSBC has downgraded Indian equities to ‘Neutral’ from ‘Overweight,’ signalling a tempered outlook for the market’s performance. The downgrade comes amid concerns over high valuations and slowing growth momentum, which HSBC believes will cap near-term market gains.

The brokerage has also revised its Sensex target for the end of 2025, lowering it to 85,990 from its earlier projection of 90,520. The new target reflects a 10.03 per cent upside from the January 8 closing level of 78,148.49. According to HSBC, the cyclical growth slowdown and elevated valuations have constrained the upside potential in the near term.

“While growth remains robust, downgrades matter because India’s earnings multiples are high. As earnings stall and markets recalibrate their earnings expectations, we see muted market returns in 2025,” the brokerage stated in its note.

Earnings growth, which had been robust at an annualized 25 per cent in recent years, has decelerated significantly. HSBC has also slashed its FY25 earnings growth forecast for the Nifty 50 from 15 per cent to just 5 per cent. The brokerage noted that there could be further downside risks to growth projections for 2025.

“India is one of the best structural stories in the region. The market benefits from a young demographic profile, expanding consumer segments, and ongoing investments in both physical and digital infrastructure. Additionally, India’s growing share in global trade and record-high forex reserves provide stability against currency volatility,” it said.

Historical Context

Indian equities have recently faced headwinds after years of robust rally. Since peaking in September 2024, the FTSE India Index has declined 12 per cent in USD terms, influenced by global uncertainties and a domestic cyclical growth slowdown. The benchmarks, Sensex and Nifty 50, have pulled back about 10 per cent from their record highs, which followed nine straight years of annual gains. Foreign investors have also exited richly valued stocks as top firms reported their weakest quarterly results in over four years.

Market Sentiment and Foreign Flows

Foreign fund outflows since September 2024 have totalled $12 billion, further pressuring the markets. However, resilient domestic investor demand has provided a buffer, reinforcing Indian equities’ defensive characteristics during global uncertainties. Potential shifts in US trade policy under the new administration may also benefit India’s export-oriented sectors.

Sectoral Dynamics

HSBC’s report noted that several sectors are struggling to sustain growth. The banking sector, which holds the largest weight in the Indian market, is facing pressure from tight monetary policies that have dampened credit demand and squeezed interest margins.

Meanwhile, the technology sector is grappling with weak overseas demand, contributing to its underperformance. As for the consumer sector, rural demand is showing signs of recovery, while urban consumption remains subdued, adding to the challenges faced by the sector.

Macro Factors and Policy Outlook

The Reserve Bank of India (RBI) has maintained its policy rates amid persistent inflation, but it has taken steps to ease liquidity conditions. HSBC anticipates two repo rate cuts of 25 basis points each in February and April 2025, which could offer some relief to the markets.

Government capital expenditure has been relatively weak but could see an uptick, benefiting the manufacturing sector. Additionally, India’s record-high forex reserves and its expanding role in global trade provide some stability amidst economic headwinds.

Regional Outlook

While HSBC has downgraded Indian equities, it remains optimistic about other Asian markets. The brokerage has an ‘Overweight’ rating on China and has upgraded Hong Kong to ‘Overweight’ from ‘Neutral.’ South Korea has also been upgraded from ‘Underweight’ to ‘Neutral.’ Conversely, HSBC maintains a cautious stance on Taiwan, Japan, and Singapore, keeping an ‘Underweight’ rating for these markets.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.