HSBC Research echoed a cautiously optimistic tone, stating that India offers a relative refuge for investors amid global market jitters and trade tensions. The global brokerage noted that both Asia and global emerging market (GEM) funds have started trimming their underweight positions in Indian equities, though global investors remain cautious.
HSBC sees macro tailwinds supporting the market, with a weaker dollar and softer inflation potentially paving the way for sustained foreign inflows in the coming months.
"The central government and Reserve Bank of India are both offering policy support, with government capital expenditure reaching a record high in Q1 2025," HSBC said.
The central bank's unexpectedly pro-growth stance — evident from a 50 basis point cut in the benchmark rate and a 100 basis point reduction in the cash reserve ratio — should further aid domestic economic expansion HSBC said.
On corporate performance, HSBC noted strong March-quarter earnings surprises from the industrial, healthcare, and telecom sectors.
Consumer discretionary earnings per share rose 14 per cent year-on-year (Y-o-Y), buoyed by solid growth in retail and services. However, FMCG companies struggled with soft demand and rising competition, while banking and IT sector earnings remained subdued.
Despite the positive Q4 results, HSBC warned that a sustained recovery in earnings growth is still a few quarters away. The firm has set a Sensex target of 82,240 by end-2025 and highlighted Godrej Consumer Products, United Phosphorus, GAIL, Ujjivan Small Finance Bank, and HDFC Life as its top stock picks.
Standard Chartered, meanwhile, reiterated its 'overweight' stance on Indian equities, highlighting a favourable mix of domestic growth recovery, resilient earnings outlook, easing financial conditions, and robust support from domestic investors. While short-term volatility is expected, the brokerage anticipates that Indian equities will outperform traditional asset classes such as bonds and commodities over the medium term.
“GDP growth and earnings outlook remain robust and are likely to outpace major peers,” Standard Chartered said in a note dated June 10.
“Stable inflows from domestic investors, driven by systematic investment plans (SIPs), and a likely return of foreign investors amid strong macro fundamentals and low foreign ownership further strengthen the outlook.”
The firm flagged potential headwinds, including a possible slowdown in economic growth, downward revisions in earnings expectations, and continued foreign investor selling, particularly if domestic inflows begin to wane.
Valuations remain elevated, with the Nifty’s 12-month forward price-to-earnings (P/E) ratio at 20.6x, above its long-term average of 18.2x, though still below recent peaks of 22x, the note added.
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