“The ongoing West Asia conflict has refocused attention on downside growth risks, given India’s significant reliance on imported energy,” said the brokerage in a client note. “Growth has showed signs of improvement in the last two quarters, but we think the recovery from hereon will be delayed.”
HSBC cut India to neutral late in March, citing less attractive risk-reward.
The sell-off in March eased valuation concerns, but the expected pressure on corporate profitability could undo the advantage.
“Valuations have fallen materially from their peak, but they will rise again as earnings cuts come through,” said the brokerage. “Without the anticipated cyclical acceleration in growth, valuations are likely to remain a constraint.” It’s most bullish on China, Hong Kong and Singapore, while upgrading South Korea to neutral from underweight. Other than India, Indonesia and Thailand are among its least preferred markets.
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HSBC sees opportunities in the country’s private banks, base metals, and select healthcare companies, but the relative case for Indian equities has weakened as “headwinds erode India’s standing versus the rest of the region”.