After Morgan Stanley, now HSBC upgrades ratings on Indian equities to ‘neutral’ from ‘underweight’

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Published: November 28, 2018 3:10 PM

In the note, HSBC said that India is one of the fastest growing markets in entire Asia, with MSCI India EPS growth consensus is seen at 18.8% for the current year 2018 and 24% for 2019.

As the general elections are scheduled to be held in 2019, the brokerage firm added that the Indian equities market will likely gain like the previous three polls. (Image: Reuters)

After Morgan Stanley maintained its rating on Indian equities to overweight, another brokerage firm HSBC has raised its rating on Indian equities to ‘neutral’ from the earlier ‘underweight’. The firm said in a note titled ‘The Flying Dutchman’ that the investors’ holdings now are very low, valuations are more reasonable and falling crude oil prices are supportive of Indian equities. Also, strong earnings growth would continue next year.

The global bank further noted that MSCI India EPS (earning per share) growth consensus is seen at 18.8% for the current year 2018 and 24% for 2019, which shows India is one of the fastest growing markets across the region.

MSCI India has underperformed MSCI’s broadest index of Asia-Pacific shares, excluding Japan, since the end of August this year, primarily because of rapid fall in rupee and volatile oil prices, which the bank expects to remain key risks going forward.

“Despite recent underperformance, these risks remain for the Indian equity market. But investors’ holdings now lowest relative to history, valuations more reasonable, 2019e (expected) earnings growth highest in the region…We raise Indian equities from underweight to neutral in a regional context,” it said.

As the general elections are scheduled to be held in 2019, the brokerage firm added that the Indian equities market will likely gain like the previous three polls, probably because more “pro-growth policies are implemented before elections or that the market is more willing to anticipate such policies”.

ALSO READ: Morgan Stanley has these four Indian stocks on focus list; ‘overweight’ on India shares

In the recent past, the Indian stock market has underperformed due to several factors including rapid fall in the domestic currency and volatility in the global crude oil prices. Since October, the crude oil prices, however, have lost almost a third of its value, due to an emerging supply overhang and widespread financial market weakness. As a result, the rupee has also shown a sharp recovery.

Meanwhile, Morgan Stanley maintained its overweight rating on Indian equities and said that the growth recovery of the South Asian nation is on track. It also said that the Reserve Bank of India (RBI) is not likely to raise interest rates, due to prevailing difficulties in the banking sector and inflation, which has favoured the central bank.

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