Leading the global bullish sentiment on Indian equities, UBS has officially upgraded the Indian market to an 'Attractive' rating, marking a significant shift from previous cautious positions. According to Hartmut Issel, Head of Equities and Macro Strategy at UBS Wealth Management, clear catalysts for a turnaround are emerging, creating a highly compelling entry point for investors. The brokerage expects the country's macroeconomic backdrop to improve significantly, driving a broader economic acceleration over the next few quarters. This macro resilience is projected to translate into solid double-digit corporate earnings growth over the next two years. UBS is already seeing early signs of this turnaround in the banking sector, where loan growth is beginning to pick up momentum. On the technology front, UBS offered a nuanced view: while the IT services sector may face slower growth in the near term due to AI-driven disruptions, Indian IT is positioned to become a key long-term player as global demand for AI solutions and legacy system integration rises. Overall, UBS believes India's long-term growth drivers remain firmly intact, rendering current Nifty valuations highly attractive.
Brokerage firm HSBC has upgraded Indian equity markets back to 'neutral', three months after downgrading it to 'underweight' in light of higher energy prices. According to reports from CNBC TV18, The Economic Times, and Business Standard, the upgrade comes as Brent crude futures are down 33% from their April peak of $126.41 as Middle East tensions eased following an interim U.S.-Iran agreement to end the war. The resilience in consumption is evident from strong business updates reported by all FMCG companies, including Dabur, Marico, Nykaa, auto sales numbers for June, and jewelers like Titan and Kalyan. As per HSBC analysts Herald van der Linde, Prerna Garg, Adam Qi and Varun Pai, the macro backdrop for India equities has improved quite a bit in recent weeks, largely because crude prices have retreated to pre-conflict levels faster than expected, easing pressure on corporate margins and reducing the need for aggressive earnings downgrades. The upgrade follows a similarly positive view from Goldman Sachs earlier this month, which cited lower commodity prices and a more stable currency for India's improved outlook.
Echoing the positive sentiment, Bernstein has projected a further 8% to 9% upside for the Indian market, with the firm noting that the recent market rebound has been heavily fueled by domestic liquidity. However, this dynamic-coupled with significant Foreign Institutional Investor (FII) outflows-has disproportionately penalized large-cap stocks. As a result, a massive valuation gap has opened up, with Bernstein expecting market leadership to broaden out and shift away from Small and Mid-caps (SMIDs) back toward large caps. With SMID valuations currently hovering near all-time highs, large caps look remarkably attractive. This rotation is expected to accelerate as foreign flows stabilize and the valuation gap narrows. Despite the recent market recovery, Bernstein pointed out that current Nifty implied growth expectations sit at roughly 10.5%-only modestly above March 2026 levels. Furthermore, broader earnings growth expectations currently remain below the peaks seen in prior cycles, leaving room for positive surprises. When it comes to sectoral bets, Bernstein is highly selective, naming IT and Healthcare as its top structural preferences, with Telecom, Healthcare, IT, and Power standing out as the most favorably positioned sectors.
Along with the upgrade, HSBC has revised its year-end target on the Sensex to 84,000 from 80,500 earlier, implying an upside potential of 8.6% from current levels. As reported by CNBC TV18, The Economic Times, and Business Standard, the recovery has prompted Foreign Institutional Investors to nibble into Indian equities, with foreign investors buying Indian shares worth $1.6 billion so far in July, turning into net buyers after four months of heavy selling. However, the brokerage remains concerned about the sustainability of these flows as attention shifts back to AI-linked opportunities. HSBC justifies this by stating that India's growth is relatively modest and valuations are still not undemanding compared to peers, therefore India will need steadier external flows for the markets to outperform its other EM peers. Despite recent gains, Indian equities are still down 7.7% year-to-date, lagging MSCI's broadest index of Asia-Pacific stocks outside Japan, up 21%.
According to HSBC's latest note, the brokerage has a preference for financials, particularly private banks after their continued underperformance as growth risks have come down. As reported by CNBC TV18, The Economic Times, and Business Standard, HSBC also likes commodities and select industrials, prefers consumer discretionary over staples as the latter looks more stretched on valuations and are more exposed to rural demand and rising food inflation. The brokerage also bets on real estate as a high beta sector as demand has held up and valuations are now more attractive. However, it expects the IT sector to stay out of favour due to AI-related concerns even after a meaningful de-rating. Bernstein advises a neutral-to-cautious approach in other pockets of the market, with Cement and Industrials currently viewed as trading close to their fair value, while Consumer Staples remain firmly in the 'expensive' zone. Despite upgrading Indian equities to 'neutral' from 'underweight', the brokerage cautioned that overseas inflows may not remain durable as global investors could once again shift their focus to AI-linked opportunities in other markets.
