Market outlook: HSBC upgrades India to overweight; Kotak sees limited gains

Analysts at HSBC led by Herald van der Linde, their head of equity strategy for Asia Pacific region, have upgraded Indian stock markets to ‘overweight’ rating from ‘neutral’ earlier.  They have kept the Sensex target unchanged at 85,130 levels for 2025-end, but see the Sensex at 94,000 levels by end-2026, up 15 per cent from Wednesday's close of 81,716.

 

While earnings growth expectations can fall a little further from here on, Linde believes Indian market’s valuations are no longer a concern. Government policy, he believes, is becoming a positive factor for equities, even as most foreign funds are lightly positioned. 

“We think Indian equities now look attractive on a regional basis and upgrade the market to overweight (from neutral). As in China, US tariffs will have little impact on the profits of most listed companies.  In stark contrast to the crowded trades in Korea and Taiwan, India is Asia's quiet corner,” Linde wrote in a recent note. 

Within the Asian region, HSBC believes investors prefer to play the artificial intelligence (AI) theme in Japan, Korea, Taiwan markets, which have now become crowded trades.

 

“Valuations have run up and in Japan, the weaker Yen has also supported equities. Corporate governance is a positive long-term theme in Japan and Korea, but it won't carry markets on its own. After the recent run-up in equities, we downgraded Korea to underweight in mid-August,” the HSBC note said.

 

China, however, still remains on investor’s radar despite elevated valuations. With (Chinese) retail investors sitting on $22 trillion in cash, some of which is gradually being re-allocated to stocks, HSBC expects Chinese equities to grind slowly higher.

 

“After the rally in H-shares – mainland Chinese investors have added a staggering $140 billion, more than double the annual average of $60 billion in the last three years – to their portfolio of stocks listed in Hong Kong this year, we think it's time to build exposure to A-shares alongside H-shares,” Linde wrote.

 

At the bourses, meanwhile, the Nifty 50 has gained around 6.5 per cent thus far in calendar year 2025 (CY) and outrun the Nifty 500 (up 4.2 per cent), Nifty Smallcap 250 (down 2.8 per cent) and Nifty Microcap 250 (down 4.1 per cent) during this period, ACE Equity data shows.

 

Limited headroom

 

As regards Indian equities, analysts at Kotak Institutional Equities (KIE) see limited headroom in the next 12 – 15 months with earnings growth being partly offset by lower multiples.

 

Analysts at KIE led by Sanjeev Prasad, their managing director and co-head of their institutional equities division, expect net profit of the Nifty 50 index to grow 9 per cent in FY26 (EPS at Rs 1,093) and 18 per cent in FY27 (EPS at Rs 1,297). Earnings, they believe, can grow at 14.3 per cent in FY28 and peg the Nifty EPS at Rs 1,487.

 

"We expect some stability in earnings after large downgrades over the past 12-15 months and strong growth in earnings in FY27 (18 per cent for the Nifty 50 Index and 17 per cent for KIE universe). We expect earnings growth to be fairly broad-based for FY27, which gives us confidence about our earnings estimates. Of course, global events can still derail the earnings recovery story,” Prasad wrote.