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(Bloomberg) — HSBC Holdings Plc. raised Indian equities to neutral citing receding risks to earnings from oil prices and strong domestic consumption, reflecting strengthening confidence in the nation’s stock market.
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“The macro backdrop for India equities has improved quite a bit in recent weeks, mainly because the oil shock faded fast,” strategists led by Herald van der Linde wrote in a note published Thursday. “We see India as a good way to gain exposure to domestic-oriented growth.”
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HSBC, which had downgraded local stocks to underweight in April citing risks to inflation from the Iran war, is one of the first major global banks to upgrade the market as those concerns ease. The shift in its stance comes as global funds turn net buyers of Indian equities after a record selloff this year, with technology-heavy markets such as South Korea facing questions over extreme volatility.
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The global bank raised its year-end target for the BSE Sensex Index to 84,000 from 80,500 earlier, implying an 8.8% upside from Wednesday’s closing price.
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Global funds have purchased Indian stocks worth $1.8 billion this month, the most among major emerging markets in Asia, according to data compiled by Bloomberg. Lower volatility and concentration risks coupled with an expected acceleration in earnings growth are attracting foreign investors to India.
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The war had made Indian stocks one of the worst performers in Asia, thanks to its high dependence on imports for cooking gas and crude oil, with the BSE Sensex sliding over 15% for the year at one point.
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“If the latest flare-up in Middle East tensions drags on, it can reignite concerns about energy supply disruptions and push energy prices higher again,” HSBC strategists said. “The main risk to look out for remains rural demand, especially if El Nino strengthens.”
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HSBC also downgraded Malaysian and Philippine stocks to underweight from neutral on lack of meaningful catalysts. Korean equities were retained at neutral, while Mainland China and Hong Kong stocks remained an overweight.
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