HSBC upgrades India eight months after downgrade, sets Sensex target at 94,000

Investment banking firm HSBC has upgraded the Indian stock market in its latest note on Wednesday, September 24. HSBC has upgraded India to "overweight" from its earlier rating of "Neutral."

The upgrade comes eight months after it had downgraded Indian equities in January citing slowdown in growth amidst high valuations, which limited the upside potential.

HSBC has pegged the Sensex target for the next 12 months at 94,000, which implies a potential upside of 13.2% from Tuesday's closing price.

In stark contrast to the crowded trades in Korea and Taiwan, India is Asia's quiet corner, HSBC wrote in its note, adding that although foreign funds have significantly withdrawn from the market over the last 12 months, domestic investors have remained resilient despite the market underperformance.

South Korea's KOSPI has been an outperformer in the entire Asia Pacific region this year with a 45% advance, the Taiwanese Index has gained 15%. In comparison, India's Sensex is up only 4.5% year-to-date. As a result of KOSPI's outperformance, HSBC had downgraded South Korea to "underweight" last month.

"While earnings growth expectations can fall a little further, valuations are no longe a concern and government policy is becoming a positive factor for equities," HSBC wrote in its note.

The firm now believes that Indian equities now look attractive on a regional basis, thereby driving their upgrade. Similar to China, HSBC expects little impact on the profits of listed Indian companies due to the US tariffs.