UBS maintains underweight stance on India amid weak nominal GDP growth

Stance stems from weak nominal GDP momentum, stretched valuations, lack of clear AI beneficiaries

Global brokerage UBS has reiterated its underweight stance on Indian equities, citing weak nominal gross domestic product (GDP) momentum, stretched valuations, and a lack of clear artificial intelligence (AI) beneficiaries, even as it strikes a more constructive tone on the rest of the emerging markets (EMs).

 

In a note synthesising its strongest views across the 22 largest EM economies, the global brokerage said India continues to lag on several fundamental metrics despite a sharp underperformance versus the broader EM universe in 2025.

 

UBS pointed to slowing nominal growth trends, weaker MSCI India fundamentals relative to peers, and valuation premiums that remain elevated by historical standards.

 

“We remain underweight on India despite a stark underperformance compared to EM in 2025,” UBS said, adding that the market lacks listed companies with direct exposure to the ongoing AI and cloud capital expenditure cycle that is driving earnings upgrades elsewhere in Asia.

 

The brokerage’s caution on India contrasts with its broader EM stance, which has turned more optimistic over the past two months. UBS has upgraded GDP projections for the US and several emerging economies, citing resilience in global technology spending, particularly in memory chips and cloud infrastructure linked to AI. This has led to growth upgrades across North Asia, including Singapore, Taiwan, Malaysia, and South Korea while UBS economists also flagged upside risks to China’s 4.5 per cent growth forecast.

 

That shift has translated into stronger earnings momentum across EM equities, though UBS noted that the acceleration has been “almost exclusively driven by tech and materials”.

 

Earnings growth for EM is forecast at 19 per cent in 2026 and around 16 per cent in 2027, with upstream technology sectors accounting for much of the strength.

 

India, however, has been largely absent from that narrative. UBS said the country has not produced clear listed beneficiaries of the AI investment cycle, unlike China, Taiwan, and Korea. At the same time, MSCI India’s valuation premium to other EMs remains above long-term averages, limiting the scope for multiple expansion even as earnings expectations stay elevated.

 

External headwinds have also weighed on the outlook. UBS highlighted higher US tariffs that came into effect in August 2025 as a drag on India’s export competitiveness. Those pressures were partly offset by resilient domestic demand, tax adjustments, frontloading of government capital expenditure, and supportive monetary policy, the brokerage said.

 

Within India, UBS continues to prefer private sector banks and consumption-oriented stocks, particularly staples, which it sees as better positioned to weather slower nominal growth and external volatility.

 

Globally, UBS said EM equities still offer selective upside, as relative valuations versus the US are not yet in “extreme terrain”. The EM price-to-earnings discount to US equities is close to its long-term average, suggesting that the asset class is not meaningfully stretched despite the recent rally.

 

UBS remains overweight on China and Brazil among large EMs. In China, the brokerage highlighted improving balance of payments dynamics and upside risks to growth, while in Brazil it continues to see attractive carry and supportive domestic fundamentals.

 

The brokerage has recommended an underweight position on Saudi Arabia and Thailand as well alongside India.