HSBC downgrades India from ‘overweight’ to ‘underweight’

HSBC Global Research has downgraded India from ‘overweight’ to ‘underweight’ due to several reasons. First, the earnings growth expectations from Indian companies are coming down. India’s capex cycle is yet to pick up and the expected boost in global commodity prices due to China’s policy stimulus is negative for India.

Second, the possible returns from interest rate cuts by RBI are coming down. The issue for Indian equities is that by June, there won’t be further rate cuts to support the market. In addition, the next rate cut might not have the same impact on equities as the first (unexpected) cut some months ago.

The impact of El-Nino (ie disturbances expected in the upcoming monsoon due to this) will be negative for India’s rural, agricultural economy. And more importantly, India is one of the most ‘over owned’ markets in Asia. HSBC Global Research also raised Philippines to ‘overweight’ from ‘neutral’ and Hong Kong to ‘neutral’ from ‘underweight’.