India could see $25bn inflow if GEM funds alter underweight stance: HSBC

A shift in stance from ‘underweight’ to ‘neutral’ by global emerging market (GEM) funds could drive flows to the tune of $25 billion into Indian equities, suggest a recent report by HSBC. 

 

“Foreign institutional investor (FII) outflows linked to artificial intelligence (AI) rotation have largely played out. Over 80 per cent of active GEM funds are underweight India, so even a move back to neutral from that group alone could drive around $25 billion of inflows,” wrote Herald van der Linde, head of equity strategy for Asia Pacific at HSBC in a coauthored note with Prerna Garg and Yogesh Aggarwal.

 

 

HSBC had earlier upgraded Indian equities to "Neutral" from "Underweight" and raised its 2026-end target for the BSE Sensex index to 84,000 levels, which translates into around 6.7 per cent upside from the current levels.

 

For context, foreign investors have bought $3.6 billion of Indian equities since mid-June, when India began outperforming the wider region.  

 

“With domestic equity demand still holding up, even modest but steady foreign inflows could provide meaningful market support,” HSBC said.

 

At the bourses, meanwhile, the markets have mostly been on an uptrend since then (mid-June) with the Nifty 50 clocking gains of nearly 4.2 per cent, ACE Equity data shows. 

 

Among sectors, Realty, Consumer Durables, IT, Auto and Pharma index have outperformed the benchmark index at the NSE with gains of up to 16 per cent during this period, data shows.

 

Volatility

 

Globally, HSBC said, Korean equities have been roughly four times more volatile than India’s so far this year as AI-related stocks kept investors on edge. Going ahead, local leverage in Korea, it believes, is likely to keep volatility elevated. 

 

 

The unusually high swings in AI-related sectors, HSBC noted, is making global investors diversify, and on that measure India looks better placed. The geopolitical situation in West Asia and US Fed policy, however, remain key unknowns.

 

Another reason to look at Indian equities, HSBC said, is a good start to the June 2026 quarter (Q1-FY27) corporate earnings season. This shift, it said, comes as high-frequency indicators such as credit growth and automobile sales continue to show strong momentum.

 

Top bets

 

As a strategy, HSBC favours domestic economy-driven sectors – financials, autos, retail, and hospitals – where demand remains firm. Private Banks and real estate, the foreign research and broking house believes, look relatively attractive after their underperformance, while diversified NBFCs stand out for their growth profile. 

 

"We also like selected industrials benefiting from government policy support. Within consumption, we prefer consumer discretionary over staples, which look more expensive and are more exposed to rural demand and rising food inflation," Linde wrote. 

 

Lenders (ICICI Bank, Cholamandalam), retailers (Titan), autos (Mahindra & Mahindra), real estate (Phoenix Mills), hospitals (Fortis Healthcare), industrials (Cummins India, Syrma SGS, Adani Ports and SEZ) and materials (Hindalco) are their top stock ideas in the Indian context.

 

“Valuations also look appealing for Indian IT, and the sector has seen some rebound recently. Still, we’re staying cautious, as deflation-related concerns are likely to keep the sentiment clouded and upside capped,” HSBC said.