HSBC ‘neutral’ on Indian stocks, says valuations stretched

Global investment banking major HSBC is “neutral” on Indian equities for the next six months on concerns over stretched valuations and high inflation.

“Stretched valuations and inflation concerns remain but we see structural growth opportunities associated with India’s digital economy, green transition and smart manufacturing,” the investment bank said in a note.

The Indian stock market has sharply outperformed global stocks and emerging market equities in 2022, driven by a positive outlook for corporate earnings and overall domestic consumption growth.

The Nifty and the Sensex index have risen over 6 percent in 2022, so far, compared to a 22 percent decline in MSCI All Country World Index.

The outperformance, however, has meant that Indian equities trade at more than 20 times one-year forward earnings, making them one of the most expensive in the world.

Within the Asia excluding China pack, the investment bank prefers equity markets in Hong Kong, Thailand and Indonesia, given the upswing in growth from the reopening of these economies following the COVID-19 outbreak.

“Indonesia has the most solid momentum on a relative basis,” HSBC said.

The investment bank is “neutral” on the Chinese market as it awaits clarity on policy initiatives to revive growth. “Balancing near-term growth headwinds and potential policy support further down the road, we stay neutral on China equities,” the investment bank said.

HSBC said bonds are more attractive from the risk-return perspective even though global stocks are cheaper after the decline triggered by slowing growth and rising interest rates.

Within the bond portfolio, HSBC is leaning towards short-dated investment-grade papers and hard currency corporate bonds in emerging markets.

HSBC has retained an “overweight” position on the US equity market for the next six months, as it likes its diversity and quality character compared to Europe.

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