Downside pressures
1. Earnings risks: Growth forecasts for 2025 have already moderated, and HSBC sees 2026 estimates of 14% as vulnerable to downgrades until clearer signs of demand recovery emerge.2. Equity supply overhang: Insider selling continues, and with muted foreign participation, excess supply is a drag on valuations.
3. Competition squeezing margins: Rising rivalry across sectors is expected to compress profitability and weigh on valuations.
4. Private capex lag: Investments remain limited to energy and mining, with little momentum in manufacturing and capital goods.
Supportive factors
1. Monetary policy tailwinds: Rate cuts and soft inflation could ease pressure on banks, which form the largest market weight.
2. Fiscal stimulus: Measures such as tax cuts are likely to aid consumption and support gradual growth recovery.
3. Valuations less stretched: Though rerating potential looks limited in the short run, domestic demand continues to underpin pricing.
4. Tariff impact muted: HSBC expects little direct hit from US trade tariffs on listed Indian companies.
5. China no longer a threat: Contrary to the popular view, HSBC argues India and China can rally simultaneously, given limited foreign institutional overlap.
The balance of risks
Overall, HSBC sees five of the nine factors turning supportive, led by monetary easing, fiscal support, manageable valuations, muted tariff impact, and resilience despite a rally in Chinese equities.
However, four risks persist, competition-led margin pressure, equity oversupply, weak private capex, and the threat of earnings downgrades if wage growth and investment fail to pick up.
