HSBC cut its rating on Indian equities to "neutral" on Thursday, joining a growing list of global brokerages that have tempered their bets on Asia's third-largest economy on slowing growth and elevated valuations.
The brokerage slashed its end-2025 target for the BSE Sensex by 5% to 85,990. That implies a 10% upside for the benchmark, which was trading at 77,700 levels on Thursday.
"The cyclical growth slowdown and elevated valuations have capped the upside in the near term... (and) we see muted market returns in 2025," HSBC said in a note.
Last year, Goldman Sachs and Bernstein Quants downgraded Indian stocks, citing a slowdown in economic and corporate activity.
However, there are also few hopefuls. Brokerages Citi and Morgan Stanley have forecast double-digit returns from Indian stocks, while Motilal Oswal said it sees healthy corporate earnings growth in FY26.
India, in January, forecast an annual growth of 6.4% in the financial year ending in March, the slowest in four years, dragged by a weaker manufacturing sector and slower corporate investments.
After hitting multiple record highs until September last year, the Sensex and the Nifty 50 index pulled back as foreign funds exited richly-valued domestic stocks after top firms registered their worst quarterly showing in more than four years.
The benchmarks, which posted their ninth straight annual gain in 2024, are trading about 10% lower than their record highs.
Banks, which have the largest weightage in India's listed universe, are struggling as strict policy measures from the central bank have slowed demand for credit, HSBC said.
Growth in the technology sector is also weak because of a slow recovery in overseas demand and though rural demand shows signs of a recovery, consumption in urban areas is muted, the brokerage said.
Still, Indian equities are relatively insulated against an uncertain global backdrop and could benefit from any change in trade policy by the incoming Donald Trump administration, HSBC said.